SCHEDULE 14A INFORMATION
SOLICITATION STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Solicitation Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Solicitation Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CELLULARVISION USA, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Solicitation Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
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(2) Aggregate number of securities to which transactions applies:
Not Applicable
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
Not Applicable
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(4) Proposed maximum aggregate value of transaction:
$32,500,000
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(5) Total fee paid:
$6,500
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
$6,500
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(2) Form, Schedule or Registration Statement No.:
Schedule 14A
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(3) Filing Party:
CellularVision USA, Inc.
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(4) Date Filed:
August 14, 1998
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CELLULARVISION USA, INC.
140 58TH STREET, SUITE 7E
BROOKLYN, NEW YORK 11220
October 7, 1998
To the Stockholders of CELLULARVISION USA, INC.:
As described in the accompanying Solicitation Statement, you are asked
to consent to a proposal to approve and adopt an Agreement to Purchase LMDS
License, dated July 10, 1998 (the "LMDS Purchase Agreement"), between WinStar
Communications, Inc. ("WinStar") and the Company. Pursuant to the terms of the
LMDS Purchase Agreement, the Company will assign 850 MHz of the spectrum covered
by its LMDS A Block License to WinStar for a purchase price of $32,500,000 (the
"Spectrum Assignment"). A copy of the LMDS Purchase Agreement is included as
Appendix A to the accompanying Solicitation Statement and should be read in its
entirety.
Your Board of Directors, after careful consideration, has determined
that the terms of the Spectrum Assignment are fair to, and in the best interests
of, the Company and the holders of shares of Common Stock and has approved the
LMDS Purchase Agreement and the Spectrum Assignment. In arriving at its
decision, the Board of Directors gave careful consideration to a number of
factors described in the accompanying Solicitation Statement, including the
opinion of Wasserstein Perella & Co., Inc. ("WP&Co."), financial advisor to the
Board of Directors, to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received in the Spectrum Assignment by the Company's wholly-owned subsidiary,
CellularVision of New York, L.P. ("CVNY"), was fair to CVNY from a financial
point of view. A copy of the written opinion of WP&Co. is included as Appendix B
to the accompanying Solicitation Statement and should be read in its entirety.
Immediate approval of the LMDS Purchase Agreement is of particular
importance to the Company at this time because the Company is experiencing a
significant liquidity crisis and, without completion of the Spectrum Assignment,
will very likely be unable to continue as a going concern. In addition, the LMDS
Purchase Agreement provides that WinStar will have the right to terminate the
LMDS Purchase Agreement if stockholder approval of the Spectrum Assignment has
not been obtained by October 10, 1998, in which case the Company will be
required to pay WinStar a termination fee of $1,625,000, reimburse WinStar for
expenses in an amount not to exceed $325,000 and repay the $3.5 million WinStar
loan. Management of the Company believes that if the Spectrum Assignment is
completed, the Company will have adequate financial resources to continue as a
going concern and will be able to assess its ongoing business prospects without
immediate concern of a failure of its business.
A MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE LMDS PURCHASE AGREEMENT.
Consummation of the Spectrum Assignment is subject to certain
conditions, including the approval and adoption of the LMDS Purchase Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote thereon and the receipt of approval by the
Federal Communications Commission. Only holders of Common Stock of record at the
close of business on September 30, 1998 (the "Record Date") are entitled to
submit ballots with respect to the proposal.
In connection with the execution by the Company of the LMDS Purchase
Agreement, on July 10, 1998, Shant S. Hovnanian and Vahak Hovnanian (together,
the "Hovnanians") entered into a voting agreement to vote all shares held by
them in favor of the approval of the Spectrum Assignment. As of September 30,
1998, the Hovnanians beneficially owned, in the aggregate, 6,836,809 shares of
Common Stock, representing approximately 40% of such shares outstanding as of
the Record Date.
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You are urged to read the accompanying Solicitation Statement, which
provides you with a description of the terms of the proposed Spectrum Assignment
and the LMDS Purchase Agreement.
YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE BALLOT AS SOON
AS POSSIBLE. Please complete, sign, date and return your ballot to Shant S.
Hovnanian, Chairman and Chief Executive Officer, CellularVision USA, Inc., 140
58th Street, Suite 7E, Brooklyn, New York 11220. A self-addressed, prepaid
envelope for return of the ballots is included with the enclosed solicitation
statement. Any inquiries should be directed to Mr. Hovnanian at (718) 489-1227.
Thank you for your interest and participation.
Sincerely,
SHANT S. HOVNANIAN
Chairman of the Board, President and Chief Executive Officer
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CELLULARVISION USA, INC.
140 58TH STREET, SUITE 7E
BROOKLYN, NEW YORK 11220
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SOLICITATION STATEMENT
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This Solicitation Statement is being furnished to the holders of
outstanding shares of common stock, par value $0.01 per share (the "Common
Stock"), of CellularVision USA, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of votes by the Board of Directors of the
Company. The Board of Directors has fixed the close of business on September 30,
1998 as the record date (the "Record Date") for the determination of
stockholders entitled to vote on the Proposal. Where context requires, the term
the "Company" includes the Company's wholly-owned operating subsidiary,
CellularVision of New York, L.P., a Delaware limited partnership ("CVNY") and
references to "vote" refer to the giving of written consent to act in lieu of a
meeting of stockholders.
The holders of outstanding shares of Common Stock as of the Record Date
are hereby asked to consider and consent to a proposal (the "Proposal") to
approve and adopt an Agreement to Purchase LMDS License, dated July 10, 1998
(the "LMDS Purchase Agreement"), between WinStar Communications, Inc., a
Delaware corporation ("WinStar"), and the Company. A copy of the LMDS Purchase
Agreement is attached to this Solicitation Statement as Appendix A. Pursuant to
the LMDS Purchase Agreement and subject to satisfaction of the conditions set
forth therein, the Company will assign 850 MHz of the spectrum covered by its
LMDS A Block License to WinStar for a purchase price of $32,500,000 (the
"Spectrum Assignment").
Immediate approval of the LMDS Purchase Agreement is of particular
importance to the Company at this time because the Company is experiencing a
significant liquidity crisis and, without completion of the Spectrum Assignment,
will very likely be unable to continue as a going concern. In addition, the LMDS
Purchase Agreement provides that WinStar will have the right to terminate the
LMDS Purchase Agreement if stockholder approval of the Spectrum Assignment has
not been obtained by October 10, 1998, in which case the Company will be
required to pay WinStar a termination fee of $1,625,000, reimburse WinStar for
expenses in an amount not to exceed $325,000 and repay the $3.5 million WinStar
loan. Management of the Company believes that if the Spectrum Assignment is
completed, the Company will have adequate financial resources to continue as a
going concern and will be able to assess its ongoing business prospects without
immediate concern of a failure of its business.
A MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE LMDS PURCHASE AGREEMENT.
Stockholders are urged to read and consider carefully the information
contained in this Solicitation Statement.
This Solicitation Statement and the accompanying ballot are first being
mailed to stockholders on or about October 8, 1998.
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IT IS IMPORTANT THAT BALLOTS BE RETURNED PROMPTLY. Please complete,
sign, date and return your ballot to the address listed on the back of the
Solicitation Statement. Any inquiries should be directed to Shant S. Hovnanian
at (718) 489-1227.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SOLICITATION STATEMENT IN CONNECTION WITH
THE SOLICITATION OF BALLOTS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
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THE DELIVERY OF THIS SOLICITATION STATEMENT SHALL NOT IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION IN THIS SOLICITATION STATEMENT OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF.
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The date of this Solicitation Statement is October 7, 1998.
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TABLE OF CONTENTS
Page
SUMMARY......................................................................1
Ballots...................................................................1
Special Factors...........................................................2
The Spectrum Assignment...................................................3
Solicitation of Proxies...................................................4
Market Price Information..................................................4
Selected Historical Financial Data........................................5
SPECIAL FACTORS..............................................................6
Background and Purpose of the Spectrum Assignment.........................6
Factors Considered by the Board of Directors;
Recommendation of the Board of Directors.................................10
Opinion of Financial Advisor.............................................11
Certain Federal Income Tax Consequences..................................13
Accounting Treatment.....................................................13
Regulatory Approvals.....................................................14
Fees and Expenses........................................................14
BALLOTS 14
Solicitation of Ballots..................................................16
Dissenting Stockholder Rights............................................16
THE LMDS PURCHASE AGREEMENT.................................................17
General..................................................................17
Representations and Warranties...........................................17
Exclusivity..............................................................17
Conditions to the Spectrum Assignment....................................18
Termination..............................................................18
Fees and Expenses........................................................18
Access to Information....................................................19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.............................20
DESCRIPTION OF SELECTED PRO FORMA EFFECTS ON FINANCIAL POSITION.............21
Effects on financial position............................................21
Effects on results of operations.........................................21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............21
FORWARD-LOOKING STATEMENTS..................................................23
AVAILABLE INFORMATION.......................................................23
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................23
APPENDIX A -- THE LMDS PURCHASE AGREEMENT
APPENDIX B -- FAIRNESS OPINION OF WASSERSTEIN PERELLA & CO., INC.
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SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Solicitation Statement. This summary is not intended to be a
complete description of the matters covered in this Solicitation Statement and
is qualified in its entirety by reference to the more detailed information
contained in or incorporated by reference in this Solicitation Statement or in
the documents attached as Appendices hereto. Capitalized terms used but not
defined in this Summary shall have the meanings ascribed to them elsewhere in
this Solicitation Statement. Stockholders are urged to read this Solicitation
Statement and the Appendices hereto in their entirety.
Ballots
The Proposal. Stockholders are hereby requested to consider and consent
to a proposal to approve and adopt the LMDS Purchase Agreement. See
"Ballots--The Proposal."
Record Date and Voting. The Record Date for the determination of
stockholders entitled to submit ballots ("Ballots") with respect to the Proposal
is the close of business on September 30, 1998. At the close of business on the
Record Date, there were 17,094,361 shares of Common Stock outstanding and
entitled to vote, held by approximately 90 stockholders of record. Each holder
of Common Stock on the Record Date will be entitled to one vote for each share
held of record. The Proposal will be adopted and become effective on the date
(the "Approval Date") the Company has received executed Ballots approving the
Proposal from stockholders holding more than 8,564,275 shares of Common Stock,
representing a majority of shares of Common Stock outstanding and entitled to
vote on the Record Date. See "Ballots--The Proposal."
Vote Required; Revocability of Ballots. Approval and adoption of the
LMDS Purchase Agreement will require the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock as of the Record Date. In
connection with the execution by the Company of the LMDS Purchase Agreement, on
July 10, 1998, Shant S. Hovnanian and Vahak Hovnanian (together, the
"Hovnanians") entered into a voting agreement to vote all shares held by them in
favor of the approval of the LMDS Purchase Agreement. As of the Record Date, the
Hovnanians beneficially owned, in the aggregate, 6,836,809 shares of Common
Stock, representing approximately 40% of such shares outstanding.
Ballots may be validly cast until November 30, 1998. Stockholders may
revoke any previously submitted Ballot by submitting to the Company at any time
prior to the Approval Date a duly executed Ballot bearing a later date.
Ballots should be completed, signed and returned promptly to Shant S.
Hovnanian, Chairman and Chief Executive Officer, CellularVision USA, Inc., 140
58th Street, Suite 7E, Brooklyn, New York 11220. A self-addressed, prepaid
envelope for return of the Ballots is included with this Solicitation Statement.
This Solicitation Statement is accompanied by a separate Ballot.
If you have any questions or need any assistance in connection with the
voting procedures, please call Shant S. Hovnanian at (718) 489-1227.
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Special Factors
Background, Purpose and Effect of the Spectrum Assignment. As described
in greater detail elsewhere in this Solicitation Statement, the Company is
engaging in the Spectrum Assignment as the most attractive means available to
discharge its outstanding financial obligations, after having explored the
possibility of effectuating a variety of other alternatives, including financing
transactions, joint ventures and sales of the Company or all of its assets as a
going concern. Although an assignment of spectrum appeared to be the most
attractive type of transaction available to the Company to discharge its
outstanding financial obligations within its limited time frame, the Company
decided to sell the minimum amount of spectrum that a buyer would require in
order for the Company to retain a usable portion of spectrum and certain
operating assets operable therewith, or adaptable thereto, following the
Spectrum Assignment.
Immediate approval of the LMDS Purchase Agreement is of particular
importance to the Company at this time because the Company is experiencing a
significant liquidity crisis and, without completion of the Spectrum Assignment,
will very likely be unable to continue as a going concern. In addition, the LMDS
Purchase Agreement provides that WinStar will have the right to terminate the
LMDS Purchase Agreement if stockholder approval of the Spectrum Assignment has
not been obtained by October 10, 1998, in which case the Company will be
required to pay WinStar a termination fee of $1,625,000, reimburse WinStar for
expenses in an amount not to exceed $325,000 and repay the $3.5 million WinStar
loan. Management of the Company believes that if the Spectrum Assignment is
completed, the Company will have adequate financial resources to continue as a
going concern and will be able to assess its ongoing business prospects without
immediate concern of a failure of its business.
The Spectrum Assignment will require the Company to discontinue its
multi-channel subscription television business, which has accounted for
substantially all of the Company's revenues to date. Following the assignment,
the Company will retain 450 MHz of LMDS spectrum, which will be reduced to 300
MHz when the first Ka band satellite becomes operational. This decision provides
the Company with cash proceeds that will enable the Board of Directors to
consider the future course of the Company's business, which might include the
pursuit of an Internet and/or other telecommunications business, a complete
liquidation or other transactions with third parties. For a further description
of the events leading to the approval and adoption of the LMDS Purchase
Agreement by the Board of Directors, see "Special Factors--Background and
Purpose of the Spectrum Assignment."
Recommendation of Board of Directors. On July 7, 1998, a majority of
the Board of Directors (i) determined that the Spectrum Assignment and the
transactions contemplated by the LMDS Purchase Agreement are fair, equitable and
in the best interests of the Company and its stockholders, (ii) approved and
adopted the LMDS Purchase Agreement and (iii) resolved to recommend that the
stockholders vote in favor of the Spectrum Assignment. Accordingly, four of the
Company's five directors recommend a vote FOR approval and adoption of the LMDS
Purchase Agreement. One of the Company's directors, who is also the holder of
3,272,656 shares of Common Stock, representing 19.1% of the shares outstanding
as of the Record Date, voted as a director against approval of the LMDS Purchase
Agreement, but reserved his right to vote as a stockholder for or against the
transaction. The stated reasons for that director's decision are set forth
below. See "Special Factors--Recommendation of the Board of Directors."
Opinion of Financial Advisor. On July 10, 1998, WP&Co. delivered its
written opinion to the Board of Directors that as of such date, and based upon
the assumptions and subject to the limitations
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set forth therein, the consideration to be received by CVNY in the Spectrum
Assignment is fair to CVNY from a financial point of view. The full text of the
written opinion of WP&Co., which sets forth assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached hereto as Appendix B and is incorporated herein by reference.
Stockholders are urged to, and should, read such opinion in its entirety. See
"Special Factors--Opinion of Financial Advisor."
The Spectrum Assignment
General. Shortly after entering into the LMDS Purchase Agreement,
WinStar made a secured loan of $3.5 million to the Company, which was used to
pay outstanding obligations and fund a portion of the Company's ongoing
operations and the wind-down of its subscription television business as required
by the LMDS Purchase Agreement. WinStar has committed to lend the Company an
additional $2 million when the stockholder approval of the LMDS Purchase
Agreement at a special meeting is obtained, provided that certain conditions,
including the absence of certain defaults, are satisfied. The Company intends to
request a waiver of certain of these conditions, but there can be no assurance
that its request will be granted. WinStar also has the option to make subsequent
loans under certain conditions. Although the Company cannot predict with
certainty when the approval by the Federal Communications Commission (the "FCC")
required for consummation of the Spectrum Assignment will be obtained, it does
not believe that such approval is likely to be forthcoming prior to November,
1998 and is therefore planning to discontinue its subscription television
business effective October 31, 1998. While the Company believes that
consummation of the Spectrum Assignment will give it sufficient liquidity to
repay the WinStar loans and all of its other outstanding debt obligations (which
totaled approximately $16,300,000 as of August 31, 1998) and will be more than
sufficient to satisfy its other obligations, it does not expect to have positive
operating income or any other source of financing prior to receipt of the
additional $2 million secured loan from WinStar. The Company is therefore taking
measures to preserve its current cash reserves so that it will be in a position
to satisfy the conditions to the Spectrum Assignment and thereafter to reassess
its financial and strategic situation and decide how best to deploy its
remaining resources.
Conditions to the Spectrum Assignment. Consummation of the Spectrum
Assignment is subject to the satisfaction or waiver of various conditions,
including, among others: (i) the approval and adoption of the LMDS Purchase
Agreement by the affirmative vote of holders of a majority of the outstanding
shares of Common Stock present and voting at a special meeting, (ii) the absence
of any injunction preventing consummation of the Spectrum Assignment, (iii) the
expiration or termination of the applicable waiting period required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iv) the prior consent of the FCC to the disaggregation of 850 MHz of
the Company's LMDS spectrum and the assignment of a license thereto to WinStar
and, unless the applicable appeal period shall have been waived by WinStar, such
consent having become a final, nonappealable order no longer subject to review
or reconsideration. If the stockholder approval requested hereby is obtained,
the Company intends to request WinStar to waive, as moot, the condition in (i)
above that a special meeting be held. In addition, the Company shall have ceased
to use the spectrum to be assigned for its subscription television business or
otherwise. On August 28, 1998, the Company received notice from the Federal
Trade Commission of the expiration of the applicable waiting period under the
HSR Act. On September 3, 1998, the Supreme Court of the State of New York (the
"Court") issued a temporary restraining order restraining and prohibiting the
Company from transferring or paying any of its assets pending the Court's ruling
on a motion made by M/A-COM, a division of AMP Incorporated, in connection with
an arbitration proceeding (the "Arbitration") against the Company and certain
other parties. On September 11, 1998, the Company filed papers with the
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Court opposing M/A-COM's motion and requesting that the Court vacate the
temporary restraining order. The Company believes that neither the Company nor
CVNY is a party to either the contract giving rise to M/A-COM's claim in the
Arbitration or the contractual agreement to submit to arbitration and therefore
expects that the Court will vacate such order with respect to these parties. See
"The LMDS Purchase Agreement--Conditions to the Spectrum Assignment."
Termination; Termination Fee. WinStar will have the right to terminate
the LMDS Purchase Agreement if the Company has not obtained stockholder approval
of the LMDS Purchase Agreement by October 10, 1998. In addition, either party
which is not then in material breach of its obligations thereunder may terminate
the LMDS Purchase Agreement if the Spectrum Assignment has not been consummated
on or before January 31, 1999, provided, however, that upon WinStar's notice,
given at least 10 days prior to the date that termination would otherwise be
permitted, such date shall be extended to June 30, 1999 and, thereafter, to
December 31, 1999 if (i) WinStar is not in material breach of its obligations
thereunder and (ii) on each such occasion WinStar makes an additional secured
loan of $3.5 million in principal amount to the Company on substantially the
same terms as its prior loans. See "The LMDS Purchase Agreement--Termination."
If the LMDS Purchase Agreement is terminated (i) prior to the
consummation of the Spectrum Assignment by the Company or CVNY (other than as a
result of a material breach by WinStar) and a court determines that specific
enforcement in accordance with the terms of the LMDS Purchase Agreement is not
available to WinStar or (ii) WinStar terminates the LMDS Purchase Agreement
because the Company has not obtained stockholder approval of the Spectrum
Assignment by October 10, 1998, then the Company will be required to pay WinStar
a termination fee of $1,625,000 and reimburse WinStar for expenses in an amount
not to exceed $325,000. Failure to obtain the stockholder approval requested by
this Solicitation Statement could therefore result in a material adverse effect
on the Company's financial position.
Solicitation of Ballots
The Company will bear the costs of soliciting Ballots from
stockholders. In addition to soliciting Ballots by mail, directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit Ballots by telephone, by telegram or in person. Arrangements have
also been made with brokerage firms and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of shares
held of record by such persons, and the Company will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith. See "Ballots--Solicitation of
Ballots."
Market Price Information
The Common Stock is listed on Nasdaq under the symbol "CVUS." On July
9, 1998, the last trading day before the public announcement of the execution of
the LMDS Purchase Agreement, the reported high and low sales price per share of
the Common Stock were $0.75 and $0.375, respectively. On October 6, 1998, the
last full trading day prior to the date of this Solicitation Statement, the
reported closing sale price per share of the Common Stock was $.21875.
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Selected Historical Financial Data
Certain selected historical financial data of the Company are set forth
under "Selected Historical Financial Data." That data should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in this Solicitation Statement. See "Incorporation of
Certain Documents By Reference."
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SPECIAL FACTORS
Background and Purpose of the Spectrum Assignment
Since 1996, the Company has operated a 49-channel analog subscription
television system on a limited basis in Brooklyn, New York, and has recently
begun to expand its television service into other areas and to market a high
speed Internet service to business customers in Manhattan. The Company and its
predecessors were the initiating force behind the FCC's designation of spectrum
for Local Multipoint Distribution Service ("LMDS"), and, as a result of those
efforts, the Company has held a commercial LMDS license for the New York Primary
Metropolitan Statistical Area ("PMSA") since 1991. Prior to the adoption of
rules by the FCC (the "LMDS rules") on July 17, 1996 and March 13, 1997 that
authorized and defined LMDS nationwide and established an auction procedure for
LMDS licenses in other markets, the Company's LMDS license only authorized the
Company to conduct a multi-channel subscription television business. However,
following the conclusion of LMDS rulemaking, the Company's LMDS license was
renewed on September 23, 1997, as a standard LMDS license for a 10-year period
ending on February 1, 2006. Under the general LMDS rules adopted by the FCC, the
Company and other LMDS licensees are entitled to use their spectrum for a wider
variety of fixed wireless purposes, including wireless local loop telephony,
high-speed Internet access, and two-way teleconferencing. The Company's LMDS
license entitles it to utilize 1,150 MHz of spectrum in the 28 GHz range
covering the 3.2 million households (8.6 million people) in New York City and
Westchester, Rockland and Putnam counties. Under the 1998 LMDS rules, the
Company will also retain the right to use an additional 150 MHz of spectrum
until the first Ka band satellite is launched, an event not expected to occur
prior to 2002.
In March 1998, the FCC concluded its auction of LMDS spectrum for each
of the 493 Basic Trading Areas ("BTA") throughout the United States (the "LMDS
Auction"), which resulted in substantially lower valuations than were originally
expected. The Company did not participate in the LMDS Auction. As a result of
their participation therein, several companies, including WinStar and the other
bidder for the Company's LMDS spectrum, WNP Communications, Inc. (the "Competing
Bidder"), now own LMDS licenses in a number of major metropolitan markets.
Since the completion of the Company's initial public offering in 1996,
the proceeds of which were used primarily to fund the build-out of its LMDS
transmission system and marketing and equipment costs for its subscription
television business, the Company has sought unsuccessfully on several occasions
to raise the additional capital necessary to execute its business plan. In the
summer of 1996, the Company was forced to abandon a proposed high-yield senior
note financing, due to unfavorable market conditions and to delays in the FCC
review process which limited the Company to a business analogous to that of
"wireless cable" or Multichannel Multipoint Distribution Systems ("MMDS")
operators. Regulatory delay also inhibited the development of advanced, digital
LMDS equipment by third party suppliers, that would permit LMDS operators to
offer the broad range of services the proposed LMDS rules would permit.
In 1997, the Company considered a variety of financing alternatives,
including a new high yield offering, and entered into negotiations with a
syndicate of banks for a $40 million line of credit, but this financing was
delayed when key proposed syndicate members informed the Company in the latter
part of the year that a formal loan commitment would have to await the outcome
of the LMDS Auction. The auction had originally been scheduled to begin on
December 10, 1997 but commencement was delayed until February 18, 1998.
On December 31, 1997, after it became apparent that this financing was
not forthcoming, the Company, recognizing an impending liquidity crisis,
instituted a round of layoffs and ceased active promotion of its subscription
television service. Additional layoffs were implemented in March and August of
1998.
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In early 1998, the Company held discussions with representatives of a
number of leading investment banks, seeking a lead underwriter for a high yield
senior note offering and bridge financing until such offering was consummated.
During this time period, divisions within the Board of Directors over governance
and other matters, more fully described below, came to the fore, and began to
interfere with the Company's execution of its business and financing plans. See
"Recommendation of the Board of Directors."
By March 1998, the Company recognized that unless it could promptly
obtain committed sources of additional financing, it would not have sufficient
financial resources to meet its obligations, and therefore entered into two
equity financing arrangements (the "April Financings") which gave the Company
the right to sell equity to third parties for an aggregate of $12.0 million, at
prices based in part on the future market price of the Company's Common Stock.
These financings, as well as other transactions entered into by the Company,
have or had the potential of being highly dilutive to the Company's existing
stockholders in the event of a sharp decline in the price of the Company's
Common Stock, which, in fact, has occurred.
One of the two financings required Marion Interglobal Ltd. ("Marion")
to exercise a warrant to purchase $2.0 million of the Company's Common Stock, at
80% of its average market price over a "look-back" period, subject to a cap of
$3.20 per share and a floor of $1.60 per share, on or before June 30, 1998.
Marion refused the Company's demand to pay the warrant exercise price when due
on June 30, 1998, at a time when the exercise price was above the then-current
market price of the Company's Common Stock. The Company plans to commence
litigation against Marion for non-performance and resulting damages following
consummation of the Spectrum Assignment and is currently in the process of
selecting counsel to conduct the litigation. Other than the voting rights
pertaining to the 110,000 shares of Common Stock that Marion owned as of the
Record Date, Marion is not entitled to any voting rights that could affect the
approval of the LMDS Purchase Agreement.
In the second of the April Financings, an affiliate of Credit Suisse
First Boston now known as Marshall Capital Management ("MCM") purchased 3,500
shares of convertible preferred stock (the "Convertible Preferred Stock") for a
purchase price of $3.5 million, which are convertible at MCM's option into the
Company's Common Stock, at a conversion price of $5.25 per share, subject to
adjustment on July 6, 1998 to 88% of the average market price over a "look-back"
period, subject to a cap of $5.25 per share. Unlike the Marion financing, the
anti-dilution and reset provisions of the MCM financing are not subject to a
floor price. The MCM financing originally contemplated two additional tranches
of $3.0 million and $3.5 million respectively, which, subject to certain
conditions, were subsequently waived by mutual agreement of the parties.
MCM has advised the Company of its view that the conversion price of
the Convertible Preferred Stock is subject to further adjustment as a result of
two repricing events: the first occurring on June 19, 1998 as a result of MCM's
inability to sell shares of Common Stock during the period when the Company was
in negotiations with third parties regarding an assignment of all or a portion
of its LMDS license, and the second occurring on July 22, 1998 as a result of
the Company's failure to register additional shares of Common Stock for sale by
MCM. If an adjustment were made to give effect to the second repricing event, as
of September 30, 1998, MCM's remaining 3,467 shares of Convertible Preferred
Stock would be convertible, subject to certain conditions and restrictions, into
a minimum of 36,981,333 shares of Common Stock, representing approximately 68.4%
of the Company's outstanding shares of Common Stock, after giving effect to such
conversion. Other than the voting rights pertaining to the shares of Common
Stock that MCM owned as of the Record Date, MCM is not entitled to any voting
rights that could affect the approval of the LMDS Purchase Agreement. Through
September 30, 1998, MCM has converted 33 shares of Convertible Preferred Stock
into 100,656 shares of Common Stock. Failure to comply with the terms of the
Convertible Preferred Stock would also result in a mandatory redemption event,
entitling holders to redeem their shares of Convertible Preferred Stock for a
per share cash price equal to 130% of (i) the stated value ($1,000) plus (ii)
accrued and unpaid dividends thereon.
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The Company believed at the time of the April Financings that such
financings would provide it with sufficient liquidity to continue its operations
on a reduced basis through the end of 1998, and give the Company time to seek
alternative sources of financing on terms more favorable to the Company.
However, following the announcement of the April Financings, the Company's stock
price began a significant and sustained decline and the Company's suppliers
began demanding payment terms substantially more aggressive than the Company's
business plan had anticipated.
On May 6, 1998, the Company engaged Wasserstein Perella & Co., Inc.
("WP&Co."). to explore a number of strategic alternatives on the Company's
behalf, including a merger or sale of the Company to a third party, a capital
infusion or a joint venture transaction. WP&Co. immediately commenced its
analysis of the Company and its financial situation and alternatives, and began
the preparation of an Offering Memorandum describing the Company.
WP&Co. contacted approximately 130 potential investors including LMDS
Auction participants, media/telecommunications funds and entrepreneurs and
participants in related industries, including wired and wireless competitive
local exchange telephone companies ("CLECs"), cable television companies,
incumbent local telephone companies, long distance telephone companies, Internet
service providers, wireless cable companies, direct broadcast satellite
companies and electric utilities regarding a potential merger or sale of the
Company, capital infusion or joint venture. Based on the response to its
preliminary inquiries, WP&Co. sent the Offering Memorandum to approximately 70
parties on and after May 20, 1998, requesting interested parties to give
preliminary indications of interest by June 6, 1998.
When the June 6, 1998 deadline for submission of preliminary
indications of interest arrived, WP&Co. had received only two formal indications
of interest, neither of which provided an indication of valuation. Subsequent to
the deadline, WP&Co. received a third formal indication of interest. WP&Co.
reported to the Company that most of the parties to whom it spoke which
expressed any interest in pursuing a transaction with the Company (including all
of whom it thought were most likely to have the ability to move as quickly as
the Company's financial situation required) expressed interest only in the
Company's LMDS license, and not in the Company's business as a whole. Indeed,
WP&Co. reported to the Company that none of the interested parties appeared
willing to ascribe significant value to the Company's other assets, which
include its installed LMDS system (which includes a head-end, transmitters,
repeaters and subscriber equipment) and its existing base of multi-channel
television subscribers.
In light of its financial situation, but desiring to realize value from
its installed base of LMDS equipment, the Company authorized WP&Co. to seek bids
for either the 850 MHz portion of its LMDS license or the two 150 MHz portions
thereof. Accordingly, on Friday, June 19, 1998, WP&Co. requested binding offers
by June 24, 1998 from the six parties it deemed to be both most interested in
acquiring such spectrum and capable of acting within the Company's compressed
time frame. The only offer received by such deadline in response to this request
was a $27.5 million bid for the Company's entire 1,150 MHz license, which came
from the Competing Bidder. Such bid was conditioned on, among other things, the
Company's delivering the written consent of the holders of a majority of the
Company's outstanding Common Stock to the proposed transaction at the time an
agreement relating thereto was signed.
Meanwhile, the Chairman of WinStar had communicated directly to the
Company's Chairman WinStar's unwillingness to participate in the formal auction
process, coupled with its serious interest in acquiring all or at least 850 MHz
of the Company's LMDS spectrum. The essential terms of the Spectrum Assignment
described herein were established during the closing days of June and in early
July, through a series of direct negotiations between the Company's Chairman and
WinStar.
The Board of Directors met at a meeting commencing on June 28, 1998
which continued thereafter on June 29, July 6 and July 7 to consider the offers
from WinStar and the Competing Bidder, and the
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Company's financial situation and prospects. During this time, the Board of
Directors was aware of payments in respect of the Company's long-term debt due
on June 30, 1998 and July 1, 1998 and also of the need to make itself fully
informed of the proposed transactions, while managing the bidding process so as
to obtain the best possible result for its stockholders under the circumstances.
At the Board meeting, the Board of Directors reviewed draft
documentation relating to the proposal from WinStar, as well as the terms of the
initial and subsequent offers received from the Competing Bidder (as described
below), received advice of its counsel, and a presentation from representatives
of WP&Co. which included a description of the bidding process. After receiving
WP&Co.'s initial presentation on June 29, 1998, the Board of Directors decided
to request that WP&Co. conduct an analysis to determine whether the
consideration to be received in the Spectrum Assignment was fair to CVNY from a
financial point of view. WP&Co. delivered its opinion to that effect to the
Board of Directors orally at the July 6, 1998 portion of the meeting of the
Board of Directors and subsequently confirmed its opinion in writing. The Board
of Directors also directed its officers and representatives during this period
to endeavor to the greatest possible extent to keep both bidders interested
until definitive documentation had been signed with one of them. The Board of
Directors was also mindful of the need for any transaction to have the approval
of its principal lender, J.P. Morgan Investment Management, Inc. ("JPMIM"),
which was being asked to waive the default in the payment of $2.8 million due on
June 30, 1998 and agree to a debt restructuring that would defer such principal
payment until the closing of the contemplated transaction.
WinStar offered $32.5 million for 850 MHz of the LMDS spectrum, and the
secured loan components of its offer were subsequently negotiated in order to
accommodate the Company's need for operational liquidity and JPMIM's
requirements. The Competing Bidder subsequently offered to buy a 1,000 MHz
portion of the Company's LMDS spectrum for $23.9 million, with a right of first
refusal covering the balance of the spectrum. The Competing Bidder subsequently
made an oral proposal, which WP&Co. presented to the members of the Board of
Directors, to acquire 1150 MHz of the Company's LMDS spectrum for $40 million,
which the Board of Directors considered seriously.
The Board of Directors requested and received from management a
financial comparison of the values potentially realizable for stockholders by
selling 1150 MHz of the Company's LMDS spectrum for $40 million, as compared to
selling an 850 MHz portion thereof for $32.5 million under circumstances that
would preserve a portion of the Company's LMDS transmission infrastructure as a
medium for delivery of high-speed Internet service, and concluded that, while it
had insufficient information at that time to commit the Company irrevocably to
an Internet-based business plan, such a plan appeared to be sufficiently
promising, in terms of creating the possibility of additional stockholder value,
that the Board of Directors determined that it would not be in the Company's
best interest to assign 1150 MHz of its spectrum for $40 million. The Board of
Directors then directed WP&Co. to continue to seek improved offers from the
Competing Bidder for 850 MHz of LMDS spectrum.
On July 6, 1998, when the WinStar documentation was substantially
complete, the Competing Bidder submitted its final written proposal to purchase
850 MHz of spectrum for $34.0 million on substantially the terms offered by
WinStar, but with two important differences. First, while the Competing Bidder
was prepared to put $10 million of its purchase price into escrow, it was not
prepared to lend the Company as much money for the purpose of repaying existing
debtholders as was WinStar. The Competing Bidder's proposal only provided for
secured loans of $250,000 per month up to an aggregate of $1.25 million. Second,
the Competing Bidder's offer was still conditioned on the advance written
consent of stockholders holding a majority of the Company's Common Stock.
WinStar's original offer had contained the same stockholder approval
requirement, but when both bidders were informed that no such consent was likely
to be forthcoming from one of the members of the Board of Directors, Bernard B.
Bossard ("Bossard"), WinStar reduced its requirement to an agreement from Shant
and Vahak Hovnanian to vote in favor of the transaction, while the Competing
Bidder stood firm in its original position.
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Prior to accepting the WinStar bid, the Board of Directors carefully
considered the Competing Bidder's final proposal. The members of the Board of
Directors noted that the amount of the Competing Bidder's offer was not
significantly more than WinStar's, and the Company's officers noted that, due to
the absence of immediate funding for the Company's principal debtholders, any
apparent premium would likely be fully absorbed by additional consideration that
the debtholders would demand for their consent to such a transaction, assuming
that such consent could be obtained at all. The Board of Directors also believed
that the Competing Bidder's requirement for prior, written consent of a majority
of the Company's stockholders was incapable of fulfillment due to Bernard
Bossard's unwillingness to consent to the transaction at the time: Mr. Bossard
indicated that he intended to reserve his right to vote as a stockholder either
for or against the transaction.
Factors Considered by the Board of Directors; Recommendation of the Board of
Directors
Factors Considered by the Board of Directors. The Board of Directors
considered the following factors in approving and adopting the LMDS Purchase
Agreement:
Although the Company desired to explore all available strategic
alternatives, WP&Co. advised the Company that most of the parties
to whom it spoke that expressed any interest in pursuing a
transaction with the Company (including all of whom it thought
were most likely to have the ability to move as quickly as the
Company's financial situation required) expressed interest only in
the Company's LMDS license, and not in the Company's business as a
whole. In light of the Company's deteriorating financial
situation, the Board of Directors believed that pursuing a
transaction involving an assignment of all or a portion of the
Company's LMDS license was in the best interest of the Company.
The Board of Directors considered management's belief that an
assignment of a portion of the spectrum covered by the Company's
LMDS license as contemplated by the WinStar transaction would be
more favorable to the Company than a sale of all of its spectrum
as it would not preclude the Company from conducting an LMDS
business in the future. The Board of Directors did recognize the
fact that the WinStar transaction would require the Company to
discontinue its multi-channel subscription television business,
which has accounted for substantially all of the Company's
revenues to date.
Pursuant to terms of the LMDS Purchase Agreement, WinStar agreed
to make an initial secured loan of $3.5 million to the Company,
which was necessary to alleviate the Company's immediate liquidity
crisis. Also pursuant to terms of the LMDS Purchase Agreement,
WinStar agreed to make an additional $2.0 million loan upon
stockholder approval of the Spectrum Assignment. The terms
proposed by the Competing Bidder did not provide a commitment to
make loans that would alleviate the Company's immediate liquidity
crisis. The Board of Directors considered the fact that the amount
of the Competing Bidder's offer price was somewhat higher than
WinStar's, but it was the consensus of the members of the Board of
Directors that any apparent premium would likely be fully absorbed
by additional consideration that the debtholders would demand for
their consent to such a transaction, assuming that such consent
could be obtained at all.
The Board of Directors also believed that the Competing Bidder's
requirement for prior, written consent of a majority of the
Company's stockholders was incapable of fulfillment due to Bernard
Bossard's unwillingness to consent to the transaction proposed by
the Competing Bidder.
Recommendation of the Board of Directors. On July 7, 1998, four of the
five members of the Board of Directors of the Company, for the reasons stated
above, and based, in part, on the opinion of WP&Co., (i) determined that the
Spectrum Assignment and the transactions contemplated by the LMDS Purchase
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Agreement were fair, equitable and in the best interests of the Company and its
stockholders, (ii) approved and adopted the LMDS Purchase Agreement and (iii)
recommended that the stockholders vote in favor of the Spectrum Assignment.
Bernard Bossard voted against the transaction, stating that he could
not support any transaction unless the Company's chief executive officer, Shant
S. Hovnanian, resigned from all positions with the Company and acknowledged that
VisionStar already was an asset of the Company. Bossard also expressed an
unwillingness to sign a voting agreement with respect to the proposed
transaction, reserving his right to vote for or against the transaction in his
discretion, depending, in part, he has stated, on the views of the other
stockholders.
Opinion of Financial Advisor
WP&Co. was retained by the Board of Directors to act as the Company's
financial advisor because of its expertise and the reputation of its senior
professionals in the areas of mergers and acquisitions and the commitment of
senior personnel of the firm to work on the assignment. WP&Co., as part of its
investment banking business, is regularly engaged in the valuation of businesses
in connection with mergers and acquisitions and other corporate purposes.
On July 10, 1998, WP&Co. delivered to the Board of Directors a written
opinion confirming the oral opinion previously delivered to the Board of
Directors on July 6, 1998 (the "WP&Co. Opinion") that, as of such date and based
upon and subject to the matters set forth therein, the consideration to be
received in the Spectrum Assignment was fair to CVNY from a financial point of
view.
THE FULL TEXT OF THE WP&CO. OPINION, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY WP&CO. IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO THIS
SOLICITATION STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ THE WP&CO. OPINION IN ITS ENTIRETY. THE WP&CO. OPINION IS DIRECTED
TO THE BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW TO CVNY OF THE CONSIDERATION TO BE RECEIVED IN THE SPECTRUM
ASSIGNMENT AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE SPECTRUM ASSIGNMENT OR
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE LMDS PURCHASE AGREEMENT. REFERENCES
TO THE WP&CO. OPINION AND THE SUMMARY OF THE WP&CO. OPINION CONTAINED HEREIN ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF.
In connection with rendering its opinion, WP&Co. informed itself of
aspects of the Company's business, operations, financial condition and prospects
and of terms of the proposed Spectrum Assignment which it deemed appropriate.
WP&Co. reviewed, among other things, the LMDS Purchase Agreement and certain
data relating to CVNY's LMDS license and reviewed and considered the results of
the LMDS Auction. WP&Co. also discussed the Company's business and prospects
with the Company's senior management. WP&Co. performed such other financial
studies, analyses and investigations, and reviewed such other information as it
considered appropriate for rendering its opinion. In the course of its review,
WP&Co. also assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial and other information provided
to or discussed with it or otherwise publicly available. The WP&Co. Opinion
assumes that the Spectrum Assignment will be consummated in accordance with the
terms of the LMDS Purchase Agreement without waiver or modification of any of
the material terms or conditions contained therein and that obtaining all
regulatory and other approval and third party consents required for consummation
of the Spectrum Assignment will not have an adverse impact on the Company. In
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addition, the WP&Co. Opinion assumes that any taxable gain to be recognized by
the Company as a result of the Spectrum Assignment will be offset by existing
net operating loss carryforwards available to the Company.
In preparing its opinion, WP&Co. performed a variety of financial and
comparative analyses. The summary of WP&Co.'s financial and other analyses set
forth below is a summary of all of the material analyses underlying the WP&Co.
Opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, WP&Co. made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, WP&Co. believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, could create a misleading or incomplete view of the processes
underlying such analyses and the WP&Co. Opinion. In performing its analyses,
WP&Co. made numerous assumptions with respect to the Company, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the Company. No FCC
license or transaction used in such analyses as a comparison is identical to
CVNY's LMDS license or the Spectrum Assignment, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses involve
complex considerations and judgments concerning specific markets, financial and
operating characteristics and other factors that could affect the values of the
assets or transactions being analyzed. The estimates contained in such analyses
and the results of any particular analysis are not necessarily indicative of
actual values or predictive of future values, which may be significantly more or
less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or assets do not purport to be appraisals or
to reflect the prices at which businesses or assets actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
In rendering the WP&Co. Opinion, WP&Co. placed significant reliance on
the fact that the LMDS Purchase Agreement resulted from an approximately
nine-week sale process during which acquisition and investment proposals were
solicited by or on behalf of the Company from approximately 130 potential
purchasers, including approximately 70 parties that were provided evaluation
material covering the Company generally. WP&Co. viewed the results of the
recently completed LMDS Auction to be the most relevant other data to consider
in determining whether the consideration to be received in the proposed Spectrum
Assignment is fair to CVNY from a financial point of view. WP&Co. analyzed the
results of the LMDS Auction and compared winning bids for licenses in the LMDS
Auction to the consideration to be received in the Spectrum Assignment on both a
per POP basis and a per POP per MHz basis. In considering the results of the
LMDS Auction, WP&Co. (i) placed more weight on the winning bids for the A Block
(1,150 MHz) than on the winning bids for the B Block (150 MHz); (ii) placed more
weight on the winning bids for markets which it deemed more comparable to the
New York PMSA than on the winning bids for other less comparable markets; and
(c) placed more weight on the net amounts of winning bids than on the gross
amounts.
WP&Co. further determined that certain valuation methodologies
traditionally used to value companies as going concerns, including comparable
company analysis, comparable acquisition analysis and discounted cash flow
analysis, were not relevant to its analysis of the Spectrum Assignment, and
WP&Co. therefore did not consider such analyses in formulating the WP&Co.
Opinion. WP&Co. pointed out, with the Board of Director's consent and agreement,
that WP&Co. was not opining in any way as to the Company's underlying business
decision to effect the Spectrum Assignment, the merits of the Spectrum
Assignment versus potential alternative transactions or actions (including the
assignment of 1150 MHz of spectrum or the seeking of protection from creditors
of CVNY or the Company under applicable bankruptcy laws), the solvency of the
Company or of CVNY, the viability of the Company's business strategy following
the Spectrum Assignment or the value of the Company's remaining business
following the Spectrum
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Assignment, which were determinations made by the Board of Directors itself
based on management presentations. Nor did WP&Co. opine as to the relative
merits of the competing proposals, whose merits and feasibility were also
reviewed and assessed directly by the Board.
In the ordinary course of business, WP&Co. and its affiliates may
actively trade the debt and equity securities of the Company and WinStar and
their respective affiliates for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
securities.
Pursuant to an engagement letter with WP&Co., the Company paid WP&Co. a
financial advisory fee in the form of warrants to purchase 50,000 shares of
common stock of the Company for $0.01 per share and has agreed to pay WP&Co. a
transaction fee calculated to equal $1.05 million, $250,000 of which was paid
upon delivery of the WP&Co. Opinion and the balance of which will be paid upon
consummation of the Spectrum Assignment. The Company has agreed to reimburse
WP&Co. for its out-of-pocket expenses, including the fees and expenses of its
legal counsel, incurred in connection with its engagement, and to indemnify
WP&Co. and certain related persons against certain liabilities and expenses
relating to or arising out of its engagement, including certain liabilities
under the federal securities laws.
Certain Federal Income Tax Consequences
The following summary of the anticipated federal income tax
consequences to the Company of the proposed Spectrum Assignment is not intended
as tax advice and is not intended to be a complete description of the federal
income tax consequences of the proposed Spectrum Assignment. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), as
presently in effect, the rules and regulations promulgated thereunder, current
administrative interpretations and court decisions. No assurance can be given
that future legislation, regulations, administrative interpretations or court
decisions will not significantly change these authorities (possibly with
retroactive effect).
No rulings have been requested or received from the Internal Revenue
Service ("IRS") as to the matters herein discussed and there is no intent to
seek any such ruling. Accordingly, no assurance can be given that the IRS will
not challenge the tax treatment of certain matters discussed or, if it does
challenge the tax treatment, that it will not be successful.
The Spectrum Assignment will be treated as a taxable transaction by the
Company upon which gain or loss will be recognized by the Company. The amount of
gain or loss recognized by the Company with respect to the Spectrum Assignment
will be measured by the difference between the amount realized by the Company on
the assignment of the LMDS license and the Company's tax basis in that license.
The amount realized by the Company on the Spectrum Assignment will include the
amount of cash received, net of expenses, and the fair market value of any other
property received in accordance with the rules prescribed under Section 1060(a)
of the Code. The Company's basis in its assets is generally equal to their cost,
as adjusted for certain items, such as depreciation. The Company believes it
will recognize an approximate net gain of approximately $31,100,000 as a result
of the Spectrum Assignment, prior to the write-off of assets deemed not
necessary by the Company in the future course of its business and that its net
operating loss and tax credit carryovers will offset substantially all of the
projected gain on the Spectrum Assignment.
The proposed Spectrum Assignment will not produce any separate and
independent federal income tax consequences to the Company's stockholders.
Accounting Treatment
Under generally accepted accounting principles, the amount of gain to
be recognized by the Company with respect to the Spectrum Assignment will
generally be measured by the difference between the amount
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realized by the Company on the assignment of the LMDS license, net of expenses,
and the Company's basis in the assets deemed not necessary by the Company at
that time in the future conduct of its business.
Regulatory Approvals
No federal or state regulatory approvals are required to be obtained,
nor any regulatory requirements complied with, in connection with the
consummation of the Spectrum Assignment by any party to the LMDS Purchase
Agreement, except for (i) the filing by each of WinStar and the Company of a
Premerger Notification and Report Form pursuant to the HSR Act, (ii) the prior
approval by the FCC of the assignment of the 850 MHz LMDS license to WinStar,
(iii) the requirements of the Delaware General Corporation Law in connection
with stockholder approvals and consummation of the Spectrum Assignment and (iv)
the requirements of federal securities laws.
Fees and Expenses
Estimated cash fees and expenses incurred or to be incurred by the
Company in connection with the Spectrum Assignment are investment banking fees
and expenses of $1.05 million ($250,000 of which has been paid), legal fees and
expenses of $250,000, filing fees of $6,500, accounting fees of $10,000 and
miscellaneous fees and expenses of $30,000. In addition, the Company granted
WP&Co. a warrant to purchase 50,000 shares of Common Stock with registration
rights at an exercise price of $0.01 per share.
The LMDS Purchase Agreement provides that all costs and expenses
incurred in connection with the LMDS Purchase Agreement and the Spectrum
Assignment will be paid by the party incurring such expense; however, the
Company is responsible for WinStar's reasonable fees and expenses of counsel
incurred in connection with the negotiation and preparation of the documents
relating to the transactions contemplated by the LMDS Purchase Agreement and the
prosecution of the FCC applications contemplated thereby in an amount not to
exceed $50,000. If the LMDS Purchase Agreement is terminated prior to the
Closing Date, under certain circumstances, the Company will be required to pay
WinStar a termination fee of $1,625,000 and reimburse WinStar for expenses in an
amount not to exceed $325,000. See "The LMDS Purchase Agreement--Fees and
Expenses."
The Company will not pay any fees or commissions to any broker or
dealer or any other person for soliciting its stockholders in connection with
the Spectrum Assignment. Brokers, dealers, commercial banks and trust companies
will, upon request, be reimbursed by the Company for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.
BALLOTS
The Proposal
The Board of Directors has determined that the Spectrum Assignment and
the LMDS Purchase Agreement are fair to, and in the best interests of, the
Company and its stockholders and has approved the Spectrum Assignment and the
LMDS Purchase Agreement by a majority vote of all directors present at the
relevant meeting.
Immediate approval of the LMDS Purchase Agreement is of particular
importance to the Company at this time because the Company is experiencing a
significant liquidity crisis and, without completion of the Spectrum Assignment,
will very likely be unable to continue as a going concern. In addition, the LMDS
Purchase Agreement provides that WinStar will have the right to terminate the
LMDS Purchase Agreement if stockholder approval of the Spectrum Assignment has
not been obtained by October 10, 1998, in which case the Company will be
required to pay WinStar a termination fee of
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$1,625,000, reimburse WinStar for expenses in an amount not to exceed
$325,000 and repay the $3.5 million WinStar loan. Management of the Company
believes that if the Spectrum Assignment is completed, the Company will have
adequate financial resources to continue as a going concern and will be able to
assess its ongoing business prospects without immediate concern of a failure of
its business.
A MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE LMDS PURCHASE AGREEMENT. See "Special
Factors--Background and Purpose of the Spectrum Assignment" and
"--Recommendation of the Board of Directors."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING BALLOT.
Record Date and Voting; Approval Date
The Board of Directors has fixed the close of business on September 30,
1998, as the Record Date for the determination of the holders of Common Stock
entitled to vote on the Proposal. Only stockholders of record at the close of
business on that date will be entitled to vote on the Proposal and submit
Ballots. At the close of business on the Record Date, there were 17,094,361
shares of Common Stock outstanding and entitled to vote on the Proposal, held by
approximately 90 stockholders of record.
Each holder of Common Stock on the Record Date will be entitled to one
vote for each share held of record. The Proposal will be adopted and become
effective on the date (the "Approval Date") the Company has received executed
Ballots approving the Proposal from stockholders holding more than 8,564,275
shares of Common Stock, representing a majority of shares of Common Stock
outstanding and entitled to vote on the Record Date.
Section 228 of the Delaware General Corporation Law (the "DGCL") states
that, unless otherwise provided in the certificate of incorporation, any action
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and those consents are
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. In the case of this Solicitation Statement, written, unrevoked
consents of the holders of a majority of the outstanding shares of Common Stock
as of the Record Date must be delivered to the Company as described above to
effect the actions as to which consents are being solicited hereunder.
WHEN CONSENTS FOR A MAJORITY OF THE COMPANY'S COMMON STOCK HAVE BEEN
OBTAINED AND DELIVERED TO THE COMPANY, A STOCKHOLDER WILL BE UNABLE TO REVOKE
HIS OR HER CONSENT.
If the actions described herein are taken, the Company will promptly
notify the stockholders who have not consented to the actions taken as required
by the DGCL.
Since the Company must receive consents from a majority of the
Company's outstanding shares in order for the Proposal to be adopted, a broker
non-vote or direction to withhold authority to vote on the Ballot will have the
same effect as a "no" vote with respect to the Proposal.
15
<PAGE>
BROKER NON VOTES, ABSTAINING OR NOT RETURNING A SIGNED BALLOT WILL HAVE
THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSAL.
Vote Required; Revocability of Ballots
Approval and adoption of the LMDS Purchase Agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock as of the Record Date. In connection with the execution by the
Company of the LMDS Purchase Agreement, on July 10, 1998, Shant S. Hovnanian and
Vahak Hovnanian (together, the "Hovnanians") entered into a voting agreement to
vote all shares held by them in favor of the approval of the LMDS Purchase
Agreement. As of the Record Date, the Hovnanians beneficially owned, in the
aggregate, 6,836,809 shares of Common Stock, representing approximately 40% of
such shares outstanding.
Ballots may be validly cast until November 30, 1998. Ballots should be
completed, signed and returned promptly to Shant S. Hovnanian, Chairman and
Chief Executive Officer, CellularVision USA, Inc., 140 58th Street, Suite 7E,
Brooklyn, New York 11220. A self-addressed, prepaid envelope for return of the
Ballots is included with this Solicitation Statement. This Solicitation
Statement is accompanied by a separate Ballot.
A Ballot executed by a stockholder may be revoked at any time at any
time prior to the Approval Date by submitting a written, dated revocation of
such Ballot covering the same shares. A revocation may be in any written form
validly signed by the record holder as long as it clearly states that the
consent previously given is no longer effective and must be executed and
delivered prior to the time that the action authorized by the executed consent
is taken. The revocation may be delivered to the Company, to the attention of
Shant S. Hovnanian, Chairman and Chief Executive Officer, CellularVision USA,
Inc., 140 58th Street, Suite 7E, Brooklyn, New York 11220.
If you have any questions or need any assistance in connection with the
voting procedures, please call Mr. Hovnanian at (718) 489-1227.
The obligation of the Company to consummate the Spectrum Assignment is
subject, among other things, to the condition that the stockholders approve and
adopt the LMDS Purchase Agreement, and its failure to obtain such approval on or
before October 10, 1998 would give WinStar the right to terminate the LMDS
Purchase Agreement and receive a termination fee and reimbursement of certain
expenses. See "The LMDS Purchase Agreement--Conditions to the Spectrum
Assignment," and "--Termination."
Solicitation of Ballots
The Company will bear the costs of soliciting Ballots from
stockholders. In addition to soliciting Ballots by mail, directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit Ballots by telephone, by facsimile or in person. Arrangements have
also been made with brokerage firms and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of shares
held of record by such persons, and the Company will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith.
Dissenting Stockholder Rights
Stockholders of the Company are not entitled to appraisal or
dissenters' rights pursuant to Section 262 of the Delaware General Corporation
Law.
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<PAGE>
THE LMDS PURCHASE AGREEMENT
The following is a summary of the material provisions of the LMDS
Purchase Agreement, a copy of which is attached hereto as Appendix A and
incorporated by reference herein. All references to and summaries of the LMDS
Purchase Agreement in this Solicitation Statement are qualified in their
entirety by reference to the LMDS Purchase Agreement. Stockholders are urged to
read the LMDS Purchase Agreement carefully and in its entirety.
General
The LMDS Purchase Agreement provides for the assignment by the Company
of 850 MHz of the spectrum covered by its LMDS A Block License (the "License")
to WinStar for a purchase price of $32,500,000 (the "Spectrum Assignment").
Pursuant to the terms of LMDS Purchase Agreement, shortly after entering into
the agreement, WinStar made a secured loan of $3.5 million to the Company, which
was used to pay outstanding obligations and fund a portion of the Company's
ongoing operations and the wind-down of its subscription television business as
required by the LMDS Purchase Agreement. In addition, WinStar has committed to
lend the Company an additional $2 million when the stockholder approval of the
LMDS Purchase Agreement at a special meeting is obtained, provided that certain
conditions, including the absence of certain defaults, are satisfied. The
Company intends to request a waiver of certain of these conditions, but there
can be no assurance that its request will be granted. Principal and interest on
such loans are payable in full at the closing by way of offset against the
purchase price then due or on such earlier date as the LMDS Purchase Agreement
may be terminated in accordance with its terms. All of the loans by WinStar to
the Company are secured by a first priority interest in all of the assets of
CVNY, and the guarantee by the Company of such loans are secured by a pledge of
all of its shares of CellularVision Capital Corp. and its limited partnership
interests in CVNY.
Representations and Warranties
The LMDS Purchase Agreement contains various representations and
warranties of the Company to WinStar, including with respect to the following
matters: (i) the due organization and valid existence of the Company and its
subsidiaries and similar corporate matters; (ii) the due authorization,
execution and delivery of the LMDS Purchase Agreement, its binding effect on the
Company and CVNY; (iii) the lack of conflicts between the LMDS Purchase
Agreement and the transactions contemplated thereby with the Company's and
CVNY's constituent documents or any contract by which the Company or CVNY is
bound; (iv) the legal and beneficial ownership of the License by CVNY, free and
clear of all liens; (v) the right of CVNY to effect the disaggregation of
spectrum contemplated by the Spectrum Assignment; (vi) regulatory compliance;
and (vii) various other matters.
The LMDS Purchase Agreement also includes certain representations and
warranties by WinStar, including representations and warranties regarding: (i)
the due authorization, execution and delivery of the LMDS Purchase Agreement,
(ii) its binding effect on WinStar; (iii) the lack of conflicts between the LMDS
Purchase Agreement and the transactions contemplated thereby with WinStar's
constituent documents or any contract by which WinStar is bound.
Exclusivity
Pursuant to the LMDS Purchase Agreement, the Company and CVNY have
agreed not to discuss a possible sale, lease or other disposition of or by CVNY
or the Company that is not consistent with the Spectrum Assignment.
17
<PAGE>
Conditions to the Spectrum Assignment
Pursuant to the LMDS Purchase Agreement, the respective obligations of
each party to effect the Spectrum Assignment are subject to the satisfaction on
or prior to the Closing Date of each of the following conditions: (i) the
approval and adoption of the LMDS Purchase Agreement by the affirmative vote of
holders of a majority of the outstanding shares of Common Stock present and
voting at a special meeting, (ii) the absence of any injunction preventing
consummation of the Spectrum Assignment, (iii) the expiration or termination of
the applicable waiting period required under the HSR Act, and (iv) the prior
consent of the FCC to the disaggregation of 850 MHz of the Company's LMDS
spectrum and the assignment of a license thereto to WinStar and, unless the
applicable appeal period shall have been waived by WinStar, such consent having
become a final, nonappealable order no longer subject to review or
reconsideration. If the stockholder approval requested hereby is obtained, the
Company intends to request WinStar to waive, as moot, the condition in (i) above
that a special meeting be held. In addition, it is a condition to consummation
of the Spectrum Assignment that the Company shall have ceased to use the
spectrum to be assigned for its subscription television business or otherwise.
On August 28, 1998, the Company received notice from the Federal Trade
Commission of the expiration of the applicable waiting period under the HSR Act.
On September 3, 1998, the Supreme Court of the State of New York (the "Court")
issued a temporary restraining order restraining and prohibiting the Company
from transferring or paying any of its assets pending the Court's ruling on a
motion made by M/A-COM, a division of AMP Incorporated, in connection with an
arbitration proceeding (the "Arbitration") against the Company and certain other
parties. On September 11, 1998, the Company filed papers with the Court opposing
M/A-COM's motion and requesting that the Court vacate the temporary restraining
order. The Company believes that neither the Company nor CVNY is a party to
either the contract giving rise to M/A-COM's claim in the Arbitration or the
contractual agreement to submit to arbitration and therefore expects that the
Court will vacate such order.
In addition, each party's obligation to close is subject to the
following conditions: (i) the other party's representations and warranties under
the LMDS Purchase Agreement and the Loan Documents (as defined in the LMDS
Purchase Agreement) shall be true and correct on and as of the Closing Date as
if made on and as of such date and (ii) the other party shall have performed all
covenants to have been performed under the LMDS Purchase Agreement and the Loan
Documents.
Termination
Either the Company or WinStar, if not then in material breach of its
obligations under the LMDS Purchase Agreement, may terminate the LMDS Purchase
Agreement without any liability by written notice to the other party if the
Closing Date has not occurred on or before January 31, 1999, provided, however,
that WinStar may extend the date that termination would otherwise be permitted
to June 30, 1999 and, thereafter, to December 31, 1999 if (i) WinStar is not in
material breach of its obligations under the LMDS Purchase Agreement and (ii) on
each such occasion WinStar makes a loan of $3.5 million to CVNY. WinStar may
terminate the LMDS Purchase Agreement at any time if the Company has not
obtained stockholder approval of the Spectrum Assignment by October 10, 1998.
The LMDS Purchase Agreement provides that in the event of its
termination, no party thereto will have any liability or further obligation to
any other party to the LMDS Purchase Agreement, provided that certain
obligations under the LMDS Purchase Agreement shall survive any termination,
including the obligation to pay the termination fee as described under "--Fees
and Expenses."
Fees and Expenses
The LMDS Purchase Agreement provides that all costs and expenses
incurred in connection with the LMDS Purchase Agreement and the Spectrum
Assignment will be paid by the party incurring the expense;
18
<PAGE>
however, the Company is responsible for WinStar's reasonable fees and
expenses of counsel incurred in connection with the negotiation and preparation
of the documents relating to the transactions contemplated by the LMDS Purchase
Agreement and the prosecution of the FCC applications contemplated thereby in an
amount not to exceed $50,000.
If the LMDS Purchase Agreement is terminated (i) prior to the Closing
Date by the Company or CVNY (other than as a result of a material breach by
WinStar) and a court determines that specific enforcement in accordance with the
terms of the LMDS Purchase Agreement is not available to WinStar or (ii) WinStar
terminates the LMDS Purchase Agreement because the Company has not obtained
stockholder approval of the Spectrum Assignment by October 10, 1998, then the
Company will be required to pay WinStar a termination fee of $1,625,000 and
reimburse WinStar for expenses in an amount not to exceed $325,000.
Access to Information
The Company has agreed to give WinStar and its representatives access
during normal business hours prior to the Closing Date to the premises of the
Company and CVNY and to all accounting, financial and other records applicable
to CVNY as WinStar may reasonably request for the purpose of confirming
compliance with the LMDS Purchase Agreement and the Company shall furnish all
information with respect to the business and affairs of CVNY as WinStar may
reasonably request for such purpose. The Company and CVNY will cause their
executives, employees, attorneys and accountants to make themselves available to
provide reasonable cooperation to WinStar in connection with the Spectrum
Assignment.
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below is certain historical consolidated financial
information of the Company. The selected financial information for, and as of
the end of, each of the years in the five year period ended December 31, 1997 is
derived from, and should be read in conjunction with, the historical
consolidated financial statements of the Company and its subsidiaries, which
consolidated financial statements have been audited by PricewaterhouseCoopers
L.L.P., independent accountants. The selected financial information for, and as
of the end of, the six-month periods ended June 30, 1998 and June 30, 1997 is
derived from, and should be read in conjunction with, the Company's unaudited
financial statements. Operating results for the six months ended June 30, 1998
are not necessarily indicative of results for the full year. The financial
information that follows is qualified by reference to the financial statements
and related notes incorporated by reference herein.
<TABLE>
<CAPTION>
(in thousands, except per share data)
As of or for the six months
As of or for the year ended December 31, ended June 30,
---------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- -------- --------- --------- ---------- -----------
(Unaudited)
Statement of Operations
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........... $ 55 $ 51 $ 1,196 $ 2,190 $ 4,943 $ 1,957 $ 2,787
---------- ---------- ---------- ---------- ---------- ---------- ----------
Service Costs..... 24 39 603 1,175 2,314 955 1,121
Selling General
and 1,799 2,884 5,637 10,574 13,859 6,662 5,777
administrative.
Management fees... 250 1,546 2,699 -- -- -- --
Depreciation and
amortization... 73 188 1,376 2,258 3,881 1,796 2,729
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses....... 2,146 4,657 10,315 14,007 20,054 9,413 9,627
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Loss.... (2,091) (4,606) (9,119) (11,817) (15,111) (7,456) (6,840)
Net interest
income 100 (1,393) (2,184) 186 (152) 50 (539)
---------- ----------- ---------- ---------- ---------- ---------- ----------
(expense) .....
Net loss.......... $ (1,991) $ (5,999) $ (11,303) $ (11,631) $ (15,263) $ (7,406) $ (7,379)
========== ========== ========== ========== ========== ========== ==========
Per Share
Basic loss per
common share(1) $ (0.91) $ (0.75) $ (0.95) $ (.46) $ (.46)
Weighted average
common shares
outstanding (1) 12,395,142 15,576,478 16,000,000 16,000,000 16,055,304
Diluted loss per
common share (1).. $ (0.91) $ (0.75) $ (0.95) $ (.46) $ (.46)
Weighted average
common shares
outstanding (1) 12,395,142 15,576,478 16,000,000 16,000,000 16,055,304
Balance Sheet
Data:
Cash and
short-term $ 18,705 $ 12,544 $ 3,536 $ 19,600 $ 408 $ 8,120 $ 77
investments....
Working capital
(deficiency)... 17,766 10,470 (1,647) 16,765 (7,029) 5,539 (11,572)
Net property and
equipment...... 407 3,469 6,322 14,158 20,608 15,826 19,014
Total assets...... 20,096 16,922 12,995 35,924 23,154 26,305 20,893
Total debt........ 15,000 16,756 18,871 6,260 7,495 4,585 7,930
Total liabilities. 16,115 18,861 26,314 8,972 11,464 6,758 13,081
Total stockholder
equity 3,981 (1,939) (13,319) 26,952 11,690 19,547 7,812
(deficit)......
(1) Historical loss per common share and weighted average common shares
outstanding for the years ended December 31, 1993 and 1994 are not
presented as they are not considered indicative of the on-going entity.
</TABLE>
20
<PAGE>
DESCRIPTION OF SELECTED PRO FORMA EFFECTS ON FINANCIAL POSITION
The following narrative is intended to describe the pro forma effect
that consummation of the LMDS Purchase Agreement would have had on the Company's
financial position as of June 30, 1998, as if such transaction had occurred on
that date, and on the Company's results of operations for the six months ended
June 30, 1998, as if such transaction had occurred on January 1, 1998. The
Company believes that a narrative description of these pro forma effects would
be more meaningful to stockholders than the presentation of pro forma financial
statements.
Effects on financial position
At June 30, 1998, the Company had outstanding liabilities in the amount
of approximately $13,100,000, including the current portion of notes payable in
the amount of approximately $7,900,000 and accounts payable, accrued expenses
and other liabilities in the amount of approximately $5,200,000. Assuming that
the Spectrum Assignment was consummated on that date and that the interim
borrowings from WinStar were not made, the net proceeds from the Spectrum
Assignment would have approximated $31,100,000. The remaining balance of
approximately $18,000,000, after payment of outstanding liabilities as of June
30, 1998, would be available to the Company in the future course of its
business, which might include the pursuit of an Internet and/or other
telecommunications business, a complete liquidation or other transactions with
third parties.
At June 30, 1998, the Company had property and equipment with a net
carrying value aggregating approximately $3,099,000, represented by
approximately $2,116,000 in set-top converters and approximately $983,000 in
head-end equipment, which may have little or no value to the Company following
the consummation of the Spectrum Assignment. The Company intends to write down
the value of these assets after considering whether these assets have salvage or
other value. The Company believes that its remaining property and equipment have
value in the future course of its business.
Effects on results of operations
For the six months ended June 30, 1998, the Company generated
approximately $2,787,000 in revenue and incurred approximately $1,121,000 in
service costs. These amounts were generated almost entirely as a result of its
subscription television service which the Company will discontinue upon
consummation of the Spectrum Assignment. Revenue to be generated following
consummation of the Spectrum Assignment will depend upon the Company's future
course of its business and cannot be predicted at this time.
Selling, general and administrative expenses have decreased in the six
months ended June 30, 1998, primarily as a result of reduced head-count-related
costs as a result of personnel reductions at the end of 1997 and the first
quarter of 1998 and will continue to decrease as a result of further reductions
in early August 1998.
For the six months ended June 30, 1998, the Company incurred interest
expense in the amount of approximately $559,000 which would not have been
incurred if the LMDS Purchase Agreement had been consummated on January 1, 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information, as of September 30,
1998, regarding the beneficial ownership of Common Stock by (i) each stockholder
who is known by the Company to own more than 5% of
21
<PAGE>
the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, each of the
persons listed below has (i) sole voting and investment power with respect to
such stockholder's shares of stock, except to the extent that authority is
shared by spouses under applicable law and (ii) record and beneficial ownership
with respect to such stockholder's shares of stock.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned (1)
-------------------------------------------------------
Beneficial Owner Number Percent
- ------------------------------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
Shant S. Hovnanian (2)...................... 3,614,154 21.1%
Bernard B. Bossard (2)...................... 3,272,656 19.1
Charles N. Garber........................... * *
John G. Walber.............................. * *
Vahak S. Hovnanian (2) (3).................. 3,222,655 18.9
Roy H. March................................ * *
Bruce G. McNeill............................ * *
Matthew J. Rinaldo (4)...................... 8,000 **
Newstart Factors, Inc. (5).................. 4,813,747(6) 22.7%
James D. Bennett (7) 4,813,747(6) 22.7%
All Directors and Executive Officers as a group
(total 4 persons)...................... 10,117,465 59.2%
- --------------------
</TABLE>
* The Company believes that the shares of Common Stock, if any, benefically
owned by these individuals are less than 1% of the outstanding Common Stock.
**Less than 1% of the outstanding Common Stock
(1) Pursuant to the regulations of the Securities and Exchange Commission
(the "Commission"), shares are deemed to be "beneficially owned" by a
person if such person directly or indirectly has or shares (i) the
power to vote or dispose of such shares, whether or not such person has
any pecuniary interest in such shares, or (ii) the right to acquire the
power to vote or dispose of such shares within 60 days, including any
right to acquire through the exercise of any option, warrant or right.
No holder of the Convertible Preferred Stock is listed in this table
because the terms of the Convertible Preferred Stock provide that no
holder thereof may convert shares of Convertible Preferred Stock into
Common Stock if as result of such conversion such holder would
beneficially own more than 4.99% of the number of shares of Common
Stock then issued and outstanding.
(2) Includes 52,678 shares of the 158,033 shares of Common Stock owned of
records by Suite 12. The Founders hold equally all of the outstanding
partnership interests of Suite 12.
(3) Includes 55,431 and 22,175 shares of Common Stock which Mr. Vahak S.
Hovnanian is required to sell upon the exercise of outstanding warrants
at a per share exercise price of $13.16 and $11.28, respectively. Also
includes 160,000 shares which was donated to The Vahak and Paris
Hovnanian Foundation which Mr. Hovnanian controls as well as 312,655
shares given to his wife, Paris Hasmig Hovnanian.
(4) Includes Options to purchase 7,000 shares of Common Stock pursuant to
the Company's 1995 Stock Incentive Plan which are fully vested and
presently exercisable, of which Options to purchase 1,000 shares of
Common Stock were granted upon election to the Board of Directors at
the 1998 Annual Meeting.
(5) The business address of Newstart Factors, Inc. is 2 Stamford Plaza,
Suite 1501, 281 Tresser Boulevard, Stamford, Connecticut, 06901.
(6) Includes 4,098,026 shares representing shares of Common Stock that may
be acquired by Newstart Factors, Inc. ("Newstart") within 60 days
pursuant to the terms of the Company's Secured Convertible Promissory
Note held by Newstart.
22
<PAGE>
(7) All shares indicated as owned by Mr. Bennett are owned by Newstart
Factors, Inc. and are included because of Mr. Bennett's affiliation
with Newstart Factors, Inc. Mr. Bennett is the sole stockholder of
Newstart Factors, Inc. Mr. Bennett's business address is 2 Stamford
Plaza, Suite 1501, 281 Tresser Boulevard, Stamford, Connecticut, 06901.
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<PAGE>
FORWARD-LOOKING STATEMENTS
The Company has made certain forward-looking statements in this
Solicitation Statement and the documents incorporated by reference herein. These
statements are based on the Company's management's beliefs and assumptions,
based on information available to it at the time such statements were prepared.
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUES
OF THE COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THESE
FORWARD-LOOKING STATEMENTS. MANY OF THE FACTORS THAT WILL DETERMINE THESE
RESULTS AND VALUES ARE BEYOND THE COMPANY'S ABILITY TO CONTROL OR PREDICT.
STOCKHOLDERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS.
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Exchange Act, and the rules and regulations thereunder, and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's
regional offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, IL 60661, and Suite 1300, Seven World Trade Center, New York,
NY 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Certain reports, proxy statements and other information concerning the
Company also can be inspected on the SEC's web site at http://www.sec.gov. See
"Incorporation Of Certain Documents By Reference."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the SEC
pursuant to the Exchange Act are hereby incorporated herein by this reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1997;
The Company's Current Reports on Form 8-K filed on January 30, 1998,
July 2, 1998, July 14, 1998, July 31, 1998, August 6, 1998, September
22, 1998 and October 2, 1998, and Current Reports on Form 8-K/A filed
on July 15, 1998 and August 10, 1998; and
The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1997 and March 31, 1998 and the Quarterly Report on Form 10-Q
(as amended on Form 10-Q/A) for the quarter ended June 30, 1998.
In addition, all documents filed by the Company pursuant to Section
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date hereof and
prior to November 30, 1998 shall be deemed to be incorporated by reference
herein and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Solicitation Statement is
qualified in its entirety by the information and financial statements (including
notes thereto)
24
<PAGE>
appearing in the documents incorporated herein by reference, except to the
extent set forth in the immediately preceding
This Solicitation Statement incorporates by reference documents that
are not presented herein or delivered herewith. Copies of such documents (other
than exhibits thereto which are not specifically incorporated by reference
herein) are available, without charge, to any person, including any beneficial
owner of Common Stock, to whom this Solicitation Statement is delivered, upon
oral or written request to Shant S. Hovnanian, Chairman and Chief Executive
Officer, CellularVision USA, Inc., 140 58th Street, Suite 7E, Brooklyn, New York
11220, telephone (718) 489-1200.
25
<PAGE>
Appendix A
AGREEMENT TO PURCHASE LMDS LICENSE
AGREEMENT TO PURCHASE LMDS LICENSE, dated as of July 10, 1998 (this
"Agreement") by and between WinStar Communications, Inc., a Delaware corporation
("Purchaser"), CellularVision USA, Inc., a Delaware corporation ("CVUSA") and
CellularVision of New York, L.P., a Delaware limited partnership ("Seller"),
WHEREAS, Seller holds the LMDS A Block License (the "License") from the
Federal Communications Commission (the "FCC") for the New York Primary
Metropolitan Statistical Area (i.e., the five boroughs comprising the City of
New York, and the contiguous New York State counties of Westchester, Rockland
and Putnam), free and clear of all liens, claims, rights of usage by third
parties and other encumbrances (collectively, "Liens"),
WHEREAS, Seller and CVUSA have retained Wasserstein Perella & Co., Inc.
("WP&Co.") to advise them on the marketing and sale of the 850 MHz License and
WP&Co. has managed the sale process, which included, among other things,
contacting a large number of potential purchasers as well as active negotiations
with certain potential purchasers, all of which resulted in the offer of the
Purchase Price and the Loans (as hereinafter defined) all on the terms and
conditions set forth herein, which CVUSA deems to be the best offer currently
available for the 850 MHz License;
WHEREAS, Seller intends to disaggregate 850 MHz of the spectrum covered
by the License, comprised of the frequencies between 27.5 and 28.35 GHz and to
be conveyed to Purchaser pursuant to a license granted by the FCC thereto (the
"850 MHz License") and Purchaser wishes to purchase the 850 MHz License, upon
the terms and subject to the conditions set forth herein, free and clear of all
Liens.
WHEREAS, holders of a majority of the outstanding shares of common
stock of CVUSA wish to irrevocably consent to this Agreement and the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises, and the mutual
conditions and obligations set forth herein, the parties hereto hereby agree as
follows:
1. Purchase Price; Loan. (a) The purchase price for the 850 MHz License
shall be $32,500,000, of which a portion will be payable by offset of the total
outstanding principal amount and accrued interest on the Loan (as defined below)
and the remainder of which will be payable by wire transfer of immediately
available funds to Seller at the Closing (defined in Section 3).
(b) As promptly as practicable following the execution and delivery of
this Agreement by the parties hereto (including the voting agreement of certain
holders owning not less than 39% of the outstanding shares of common stock of
CVUSA), Purchaser will make an initial loan to Seller (the "Initial Loan") in
the amount of $3,500,000, and, when Seller shall have made the FCC filings
contemplated by Section 2(a) and CVUSA shall have obtained the stockholder
approval contemplated by Section 13, Purchaser will make an additional loan in
the amount of $2,000,000 (such loan, together with the Initial Loan and the
loans that Purchaser may, in its sole discretion, make pursuant to Section 6,
the "Loans") at 7.5% per annum, with interest and principal payable in full at
the Closing by way of offset against the purchase price then due, as provided
above, or on such earlier date as this Agreement may be terminated in accordance
with its terms, provided that in the event of such a termination, such interest
rate will be 18% per annum. The Loans will be secured by a first priority
perfected security interest on all of the assets of Seller as to which a
security interest may be granted, including, without limitation, the proceeds
from such assets as well as from the sale or other transfer of FCC licenses, it
being understood and agreed that (i) a vendor's security interest in certain
equipment has been assigned to NewStart Factors, Inc. and (ii) the FCC licenses
may not be subject to security interests as a matter of law. Purchaser's
<PAGE>
security interest will extend to after-acquired property and to proceeds,
provided that Seller will retain the right to enter into vendor financing and
equivalent secured financing arrangements with respect to equipment acquired
after the date hereof. CVUSA will guarantee the repayment in full of the Loans
in accordance with its terms, and will secure its guarantee with a pledge of all
of the outstanding shares of stock of CellularVision Capital Corp., the sole
general partner of Seller, and all of the outstanding limited partnership
interests in Seller, all of which are owned by CVUSA. The parties agree to
prepare, review and negotiate in good faith and execute as promptly as
practicable (and in any event prior to the funding of the Loans) mutually
acceptable definitive documentation (the "Loan Documents") in customary form for
these financing transactions, including, without limitation, a Loan Agreement
(including guaranty provisions), a Note, a Security Agreement (including pledge
provisions), and UCC-1 forms. To the extent there is an inconsistency between
the Loan Documents and this Agreement with respect to the Loans and related
security arrangements, the Loan Documents shall control.
2. Government Approvals; Transition. (a) As promptly as practicable
following the execution and delivery of this Agreement, Seller and Purchaser
will (i) file appropriate applications for the disaggregation of the License and
assignment of the 850 MHz License to Purchaser and (ii) make such filings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations (collectively, the "HSR Act") as may be legally required in order to
consummate the transactions contemplated herein, with the filing fee related to
any such filing to be shared by Purchaser and Seller on a 50%/50% basis.
Following the making of such applications and filings, both parties will
diligently attempt to obtain successful results with respect thereto in a manner
that permits the consummation of the transactions contemplated herein as soon as
practicable.
(b) Prior to the Closing, and in accordance with all
applicable legal and regulatory requirements, Seller will clear its operations
from the spectrum covered by the 850 MHz License, such transition to be
completed in any event within 90 days of the date of FCC Approval (as herein
defined).
3. Closing. The closing of the transactions contemplated herein (the
"Closing") shall occur on the first business day (the "Closing Date") following
the first date upon which all of the following conditions are satisfied: (i) the
FCC shall have granted its consent to the assignment of the 850 MHz License to
Purchaser and, unless waived by Purchaser, such consent shall have become a
final, nonappealable order no longer subject to review or reconsideration ("FCC
Approval"); (ii) CVUSA shall have obtained the approval of its stockholders with
respect to the transactions contemplated hereby; and (iii) any applicable
waiting period under the HSR Act shall have expired without action taken to
prevent the consummation of the transactions contemplated herein. At the
Closing, Seller shall assign the 850 MHz License to Purchaser free and clear of
all Liens against payment of the Purchase Price as contemplated by Section 1
hereto.
4. Representations and Warranties. (a) Each party (the "Representer")
hereby represents and warrants to the other that (i) the Representer has all
requisite power and authority to execute this Agreement and the Loan Documents
and perform its obligations hereunder and thereunder, (ii) all corporate and
partnership action necessary for the authorization, execution and performance by
the Representer of its obligations hereunder and thereunder have been taken,
except that, in the case of CVUSA, stockholder approval may be required, and
(iii) subject to obtaining the consent and approvals referred to in paragraph 3
above, the execution, delivery and performance of this Agreement and the Loan
Documents does not and will not require the consent of any other person or
entity, contravene the certificate of incorporation or by-laws or certificate of
limited partnership or partnership agreement of the Representer or conflict with
or result in a breach or violation by the Representer of any law, court or
administrative order or contract to which the Representer is a party or by which
the Representer is bound.
(b) Seller and CVUSA hereby represent and warrant that Seller is the
sole legal and beneficial owner and holder of the License, has the right under
applicable law and FCC regulations to effect the disaggregation of spectrum
contemplated hereby and that the License is, and the 850 MHz License will be,
held by Seller free and clear of all Liens. Without limiting the foregoing,
Seller hereby represents and warrants that no person or entity
A-2
<PAGE>
other than Seller
has or will have the right to use all or any portion of the License or the 850
MHz License. Seller hereby further represents and warrants that (i) it is in
compliance in all material respects with the Communications Act of 1934, as
amended, and the rules, regulations and policies of the FCC, (ii) Seller has
satisfied all build-out, renewal, construction and other material regulatory
requirements, and (iii) there are no pending complaints, challenges, petitions,
appeals or other regulatory encumbrances pending or, to the best of the
knowledge of Seller or CVUSA, threatened, against Seller or the License.
(c) Each party will use all commercially reasonable efforts to cause
all of its representations and warranties in this Agreement to remain true and
correct at all times through the Closing Date and to cause all conditions to
Closing to be satisfied.
5. Closing Conditions. (a) Each party's obligation to close shall be
subject to the following conditions (i) the other party's representations and
warranties hereunder and under the Loan Documents shall be true and correct on
and as of the Closing Date as if made again on that date, (ii) the other party
shall have performed all covenants to have been performed hereunder and
thereunder and (iii) the other party shall have delivered a certificate of a
senior officer as to the matters in clauses (i) and (ii) above dated as of the
Closing Date.
(b) Purchaser's obligation to close shall be subject to the conditions
that (i) the conditions referred to in Sections 2(b) and 3 shall have been
satisfied, (ii) there shall be no injunction or order of any court or government
agency restraining or invalidating any of the transactions contemplated hereby,
and (iii) Purchaser shall have received opinions of Seller's counsel dated as of
the date hereof and as of the Closing date in form and substance reasonably
satisfactory to Purchaser and covering such portion of the matters covered by
Seller's and CVUSA's representations contained herein as are customarily covered
in legal opinions and subject to customary qualifications, including an opinion
of FCC counsel substantially in the form attached.
6. Termination. Either party which is not then in material breach of
its obligations hereunder may terminate this Agreement without liability by
written notice to the other party if the Closing Date shall not have occurred on
or before January 31, 1999, provided, however, that upon Purchaser's notice
given at least 10 days prior to the date that termination would otherwise be
permitted, such date shall be extended to June 30, 1999 and, thereafter, to
December 31, 1999 if (i) Purchaser is not in material breach of its obligations
hereunder and (ii) on each such occasion Purchaser makes an additional Loan of
$3.5 million in principal amount to the Seller on substantially the same terms
as the Loans. Purchaser may terminate this Agreement at any time if CVUSA has
not obtained stockholder approval of this transaction by October 10, 1998.
7. Transaction Expenses. Except as otherwise provided in Section 2(a)
and Section 13, each of the parties hereto will be responsible for its own
expenses (including fees and expenses of legal counsel) incurred in connection
with the transactions contemplated hereby, provided that as of the Closing Date
(or earlier termination of this Agreement in accordance with its terms in a case
in which the expense reimbursement provision of Section 13 do not apply) Seller
and CVUSA will reimburse Purchaser's reasonable fees and expenses of counsel
incurred in connection with the negotiation and preparation of the documents
relating to the transactions contemplated hereby, including the Loans, and the
prosecution of the FCC applications contemplated hereby, provided that the
amount of such fees and expenses related to the documentation of the
transactions through the funding of the Initial Loan and prosecution of the FCC
applications contemplated hereby shall not exceed $50,000. Each party represents
to the other that it has not incurred any liability for a broker's or finder's
fee in connection with the transactions contemplated hereby, except that Seller
is liable to WP&Co. for fees in connection with such transactions.
8. Publicity; Disclosure. Without the prior approval of the other
party, neither of the parties hereto shall disclose to the public or to any
third party any information concerning the transactions contemplated hereby,
other than disclosures to their financial, legal and other advisors and to
governmental authorities or the public as
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<PAGE>
may, in the opinion of counsel, be required by law. Notwithstanding the
foregoing, CVUSA shall be permitted to include in the proxy statement described
in Section 13 hereof, such details of the transactions contemplated hereby as
may be required by law; provided that Purchaser shall have the right to review
and comment thereon prior to the proxy statement being filed with the Securities
and Exchange Commission or distributed to the stockholders. The parties will
cooperate in the preparation of a joint press release or coordinated but
separate press releases announcing the effectiveness of this Agreement as soon
as it occurs pursuant to Section 12.
9. Access. Until the Closing, CVUSA and Seller will give Purchaser and
its representatives all access during ordinary business hours to the premises
and personnel of Seller and CVUSA and to all accounting, financial and other
records applicable to Seller as Purchaser may reasonably request for the purpose
of confirming compliance with this Agreement and CVUSA and shall furnish all
information with respect to the business and affairs of Seller as Purchaser may
reasonably request for such purpose. CVUSA and Seller will cause their
executives, employees, attorneys and accountants to make themselves available to
provide reasonable cooperation to Purchaser in connection therewith.
10. Exclusivity. Neither CVUSA nor Seller shall (nor shall either of
them permit their representatives or stockholders to) discuss a possible sale,
lease or other disposition of or by Seller or CVUSA (whether by sale of stock or
assets or otherwise) that is not consistent with the sale to Purchaser of the
850 MHz License contemplated hereby or provide any information in connection
therewith to any other party or enter into any agreements or commitments to do
the same.
11. Assignment. This Agreement is intended to be a binding agreement
between Purchaser, CVUSA and Seller and shall bind and inure to the benefit of
the successors and assigns of such parties; provided that CVUSA and Seller may
not assign their rights or delegate their obligations hereunder without
Purchaser's prior written consent, which will not be unreasonably withheld.
Purchaser may assign its rights hereunder to any of its wholly-owned or majority
controlled subsidiaries, provided that no such assignment of its rights shall
relieve Purchaser of any of its obligations hereunder.
12. Effectiveness. Simultaneously with the execution and delivery of
this Agreement the following are expected to occur, upon the occurrence of which
this Agreement will come into full force and effect:
(a) Holders of not less than 39% of the issued and
outstanding shares of common stock, par value $0.01 per share of CVUSA shall
have agreed to vote their shares as provided below;
(b) Seller shall have executed and delivered to Purchaser the
Loan Documentation, including arrangements with existing creditors as Purchaser
shall deem appropriate;
(c) Purchaser shall have received such opinions of Seller's
counsel as it shall reasonably require in connection with FCC and corporate
matters with respect to the Loan Documents, the License and the transactions
contemplated hereby, including, if Purchaser so requires, a favorable opinion
from Purchaser's FCC counsel to the effect that there is no reason to expect (i)
that the transactions contemplated hereby will materially adversely affect the
regulatory status of any of the FCC wireless licenses currently held by
Purchaser or any of its subsidiaries or (ii) that there is any reason to believe
that the disaggregation of spectrum is not permissible under applicable law.
13. Shareholder Approval; Break-up fee; Events of Bankruptcy.
(a) CVUSA has obtained the approval of a majority of its
board of directors to the transactions contemplated hereby, and its board has
recommended and will continue to recommend, so long as such recommendation is
consistent with their fiduciary duties under applicable law, that its
stockholders vote to approve the transactions contemplated hereby. CVUSA will
call a special meeting of its stockholders as promptly
A-4
<PAGE>
as practicable for the purpose of obtaining such approval, will file a
preliminary proxy statement with respect thereto with the Securities and
Exchange Commission within five (5) business days of the execution of this
Agreement and will distribute a definitive proxy statement to stockholders in
accordance with applicable law, and use its best efforts to hold such meeting
and obtain such approval as quickly as possible.
(b) In the event a petition for relief under 11 U.S.C. ss.101
et seq. (the "Bankruptcy Code") or similar state insolvency statute, is filed by
or against Seller or CVUSA, each of Seller and CVUSA agrees to (i) consent to
entry of an order for relief under Chapter 11 of the Bankruptcy Code; (ii)
continue to comply with the terms of this Agreement; and (iii) to the extent
necessary for Seller or CVUSA to continue to comply with the terms of this
Agreement, seek Bankruptcy Court approval of the sale contemplated by this
Agreement or take such other action as may be necessary or advisable to allow
Seller and CVUSA to continue to comply with the terms of this Agreement.
(c) In the event at any time on or prior to the Closing Date
(i) this Agreement is terminated by Seller or CVUSA (other than as a result of a
material breach by Purchaser) and a court determines that specific enforcement
in accordance with the provisions of Section 14(b) is not available to
Purchaser, or (ii) Purchaser terminates this Agreement because CVUSA stockholder
approval has not been obtained by October 10, 1998, then Purchaser shall be
entitled to the following as liquidated damages, and not as a penalty:
(i) Expense Reimbursement: Seller and CVUSA jointly and
severally shall reimburse Purchaser for its actual and reasonable out-of-pocket
expenses, not to exceed $325,000 (exclusive of the amounts payable pursuant to
Section 7) incurred in furtherance of this Agreement and the transactions
contemplated herein, including without limitation, attorneys' fees and expenses
incurred by Purchaser for services of outside counsel in negotiating this
Agreement, the Loan Documents and all related agreements, performance of due
diligence, or otherwise (the "Expense Reimbursement"). Purchaser shall submit to
Seller and CVUSA an itemized statement reflecting such actual reasonable
expenses. Within five (5) days thereafter, Seller and CVUSA shall make an
Expense Reimbursement. This obligation shall survive any termination of this
Agreement, and shall be secured by the collateral under the security agreement
being executed in relation to the Loans.
(ii) Termination Fee. Seller and CVUSA jointly and severally
shall, within five (5) days of such termination, pay $1,625,000 to the Purchaser
as a termination fee ("Termination Fee"). This obligation shall survive any
termination of this Agreement, and shall be secured by the collateral under the
security agreement being executed in relation to the Loans.
14. Specific Performance; Miscellaneous; Conflict Waiver. (a) This
Agreement shall be construed and enforced in accordance with the internal laws
of the State of New York. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but which together shall
constitute one instrument.
(b) Notwithstanding the provisions of Section 13(c)(i) and
(ii), it is understood and agreed that money damages would not be an adequate
remedy for a breach of the Agreement by Seller or CVUSA and that Purchaser shall
be entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach. Seller and CVUSA agree to waive any requirement
for the securing or posting of any bond in connection with such remedy. Such
remedy shall not be deemed to be the exclusive remedy for any such breach, but
shall be in addition to all other remedies available to Purchaser at law or in
equity.
(c) Each of the parties hereto acknowledges that Willkie Farr
& Gallagher regularly acts as counsel for each of them, and consents to the fact
that the New York office of such firm will provide corporate (but not FCC)
advice to CVUSA and Seller (which will receive FCC advice from other counsel),
its Washington office will provide FCC (but not corporate) advice to Purchaser,
which is also represented by other counsel in this matter.
A-5
<PAGE>
[Signature page follows]
A-6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
WINSTAR COMMUNICATIONS, INC.
By:/s/ Timothy R. Graham
Title:
Accepted and agreed as of July 10, 1998
CELLULARVISION USA, INC.
By: /s/ Shant Hovnanian
Printed name:
Title:
CELLULARVISION OF NEW YORK, L.P.
By: CELLULARVISION CAPITAL CORP.,
its General Partner
By: /s/ Shant Hovnanian
Title: President
Voting Agreement by Stockholders
In consideration of the Purchaser executing the Agreement, the
undersigned, being the holders of not less than 39% outstanding shares of the
voting capital stock of CellularVision USA, Inc. which is entitled to vote a the
approval of the transactions described herein, hereby expressly and irrevocably
agree to vote all such shares in favor of approval of the transactions
contemplated hereby at any special meeting of stockholders to be called for such
purpose and do hereby agree to take such actions as Purchaser may reasonably
request in order to further evidence such approval and consent.
/s/ Shant Hovnanian
-------------------
Shant Hovnanian
/s/ Vahak Hovnanian
-------------------
Vahak Hovnanian
A-7
<PAGE>
Appendix B
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
Telephone (212) 969-2700
Fax (212) 969-7836
July 10, 1998
Board of Directors
CellularVision USA, Inc.
140 58th Street
Brooklyn, NY 11220
Members of the Board:
You have asked us to advise you with respect to the fairness, from
a financial point of view, to CellularVision of New York, L.P. ("CVNY"), an
indirect wholly owned subsidiary of CellularVision USA, Inc. (the
"Company") of the consideration to be received by CVNY pursuant to the
terms of the Agreement to Purchase LMDS License, dated as of July 10, 1998
(the "Asset Purchase Agreement"), between the Company, CVNY and WinStar
Communications, Inc. (the "Purchaser"). This letter confirms our advice
delivered to you orally on July 6, 1998. The Asset Purchase Agreement
provides for, among other things, the purchase (the "Purchase") by
Purchaser for $32.5 million of a Federal Communications Commission ("FCC")
license to operate Local Multipoint Distribution Service ("LMDS") services
in the New York Primary Metropolitan Statistical Area (the "New York PMSA")
on 850 MHz of spectrum, comprised of the frequencies between 27.5 and 28.35
GHz (the "850 MHz License"), which is to be disaggregated from CVNY's
existing FCC license to operate LMDS services in the New York PMSA on 1150
MHz of spectrum (the "1150 MHz License"). The Asset Purchase Agreement also
provides that, in connection with the Purchase, the Purchaser will make a
loan to CVNY shortly following the execution of the Asset Purchase
Agreement in the amount of $3.5 million at an annual interest rate of 7.5%
that will be secured on a first priority basis by all of the assets of CVNY
as to which a security interest may be granted, the Purchaser will make an
additional loan to CVNY in the amount of $2.0 million on similar terms at
such time as CVNY has made certain filings with the FCC and the Company has
received shareholder approval for the Purchase, and the Purchaser will make
additional loans to CVNY on similar terms, each in the amount of $3.5
million, under certain circumstances, if the Purchase has not been
consummated by January 31, 1999 and, thereafter, if the Purchase has not
been consummated by June 30, 1999 (such loans, collectively, the "Loans"),
such loans to be repaid (in the event the Purchase is consummated) by an
offset of the purchase price upon the consummation of the Purchase. The
terms and conditions of the Purchase and the Loans are set forth in more
detail in the Asset Purchase Agreement.
In connection with rendering our opinion, we have reviewed the
Asset Purchase Agreement. We have also reviewed and considered certain data
relating to CVNY's LMDS license and have reviewed and considered the
results of the auction of LMDS spectrum conducted by the FCC and completed
on March 25, 1998. We have also performed such other financial studies,
analyses, and investigations and reviewed such other information as we
considered appropriate for purposes of this opinion. Among other things, in
formulating our opinion we placed significant reliance on the fact that the
agreement to undertake the Purchase resulted from an approximately nine
week sale process during which acquisition and investment proposals were
solicited by or on behalf of the Company from approximately 130 potential
purchasers, including approximately 70 parties that were provided
evaluation materials concerning the Company generally. The initial portion
of the sale process was not subject to any material constraints, except
that, because of CVNY's financial condition, including what we were
informed were significant potential near-term cash flow problems, we were
compelled to conduct the sale process within a limited time frame. In
addition, after the initial portion of the sale process had not resulted in
meaningful interest in any transaction that could be consummated within the
limited time frame referred to above other than a purchase of all or a
portion of CVNY's spectrum, the Company expressed a preference to sell only
a portion of CVNY's spectrum, and we conducted the remainder of the sale
process in a manner consistent with that stated preference. Specifically,
formal offers with respect to the possible sale of the 850 MHz License or
some other portion of CVNY's spectrum were solicited from a smaller group
of persons that were deemed, based upon the responses received in the more
general solicitation process and other factors, to be likely potential
purchasers of a portion of CVNY's spectrum within the available time frame.
New York Chicago Dallas Frankfurt Houston London Los Angeles Paris San Francisco
Tokyo
<PAGE>
In our review and analysis and in formulating our opinion, we have
assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to or discussed with us or
publicly available, and we have not assumed any responsibility for
independent verification of any of such information. You have informed us,
and we have assumed that any taxable gain to be recognized by the Company
from the Purchase will be offset by existing net operating loss
carryforwards available to the Company. We also have assumed that obtaining
all regulatory and other approvals and third party consents required for
consummation of the Purchase will not have an adverse impact on the Company
and we have assumed that the transactions described in the Asset Purchase
Agreement will be consummated without waiver or modification of any of the
material terms or conditions contained therein by any party thereto. Our
opinion is necessarily based on economic and market conditions and other
circumstances as they exist and can be evaluated by us as of the date
hereof.
In the ordinary course of our business, we may actively trade the
debt and equity securities of the Company and the Purchaser for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
We are acting as financial advisor to the Company in connection
with the proposed Purchase and will receive a fee for our services, a
portion of which is due upon rendering of this opinion and a significant
portion of which is due and contingent upon the consummation of the
Purchase.
Our opinion addresses only the fairness from a financial point of
view to CVNY of the consideration to be received by CVNY pursuant to the
Asset Purchase Agreement, and we do not express any views on any other term
of the Purchase. Specifically, our opinion does not address the Company's
or CVNY's underlying business decision to effect the transactions
contemplated by the Asset Purchase Agreement. Our opinion also does not
address the relative merits of the Purchase versus potential alternative
transactions or actions, including the sale of the entire 1150 MHz License
or of some portion of the spectrum covered by the 1150 MHz License other
than that covered by the 850 MHz License, the sale of all or a portion of
the equity of the Company, or the seeking of protection from creditors of
CVNY and/or the Company under applicable bankruptcy laws or otherwise. In
addition, you have advised us that the Board of Directors of the Company
has made the business decision to enter into the Purchase in lieu of
pursuing a proposal from another party regarding a sale of the 850 MHz
License for a purchase price in excess of the purchase price to be paid by
the Purchaser in connection with the Purchase. You have advised us that the
business decision to not pursue such other proposal is based upon an
assessment by the Board of Directors that such other proposal (a) did not
provide the interim funding required by the Company and CVNY and (b) was
contingent upon certain conditions that the Board of Directors did not
believe would be satisfied. You have also advised us that the Board of
Directors of the Company has made the business decision, based upon levels
of interest expressed during the sale process described above, to enter
into the Purchase in lieu of pursuing a possible proposal from another
party regarding a sale of the 1150 MHz License for a purchase price in
excess of the purchase price to be paid by the Purchaser in connection with
the Purchase. You have advised us that the business decision to sell only
the 850 MHz License is based upon an assessment by the Board of Directors
that the spectrum not being sold to the Purchaser can be used by CVNY to
preserve the value of its built-out infrastructure enabling it to consider
and pursue a variety of strategic alternatives in the future, including but
not limited to the operation of a high-speed Internet access service, alone
or in a joint venture with others, and the future sale or liquidation of
the Company, which may involve the disposition of CVNY's remaining spectrum
and infrastructure as a going concern. You have not asked us to evaluate or
confirm these business judgments and we do not express any opinion herein
as to either such business judgment. In addition, our opinion does not
address the solvency of the Company or CVNY following consummation of the
Purchase or at any time, the appropriateness of any proposed use of
proceeds from the Purchase, or the issue of whether the Company's business
strategy following the Purchase is viable or will have a material adverse
effect on the financial viability of the Company or CVNY or on the ability
of the Company or CVNY to satisfy their obligations to creditors and
finance their respective operations. In addition, we express no opinion
herein as to whether the Purchase will constitute a "fraudulent conveyance"
or "fraudulent transfer" under relevant fraudulent conveyance or fraudulent
transfer statutes.
It is understood that this letter is for the benefit and use of
the Board of Directors of the Company in its consideration of the Purchase
and, except for inclusion in its entirety in any registration statement or
proxy or
B-2
<PAGE>
information statement required to be circulated to shareholders of the
Company relating to the Purchase, may not be quoted, referred to or
reproduced at any time or in any manner without our prior written consent.
This opinion does not constitute a recommendation to any shareholder or as
to how such holder should vote with respect to the Purchase, and should not
be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that as of
the date hereof the consideration to be received by CVNY pursuant to the
Asset Purchase Agreement is fair to CVNY from a financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co., Inc.
WASSERSTEIN PERELLA & CO., INC.
B-3
<PAGE>
BALLOT
CELLULARVISION USA, INC.
The undersigned, acting with regard to all shares of Common
Stock of CellularVision USA, Inc., a Delaware corporation (the "Corporation"),
which the undersigned is entitled to vote as of September 30, 1998, hereby
consents, pursuant to Section 228 of the Delaware General Corporation Law, to
the taking of the following action without a meeting of stockholders by majority
consent:
To approve and adopt the Agreement to Purchase LMDS License,
dated as of July 10, 1998, between the Company, CellularVision
of New York, L.P. ("CVNY") and WinStar Communications, Inc.
pursuant to which CVNY will assign 850 MHz of the spectrum
covered by its LMDS A Block License to WinStar Communications,
Inc.:
For [ ] Against [ ] Abstain [ ]
(Please mark the appropriate box with an "x")
A majority of the Board of Directors
recommends that you vote "FOR" the
preceding proposal.
PLEASE DATE AND SIGN BELOW AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
--------------------------------------------------------------------
IF THIS BALLOT IS EXECUTED AND RETURNED BUT NO INDICATION IS MADE ON
THIS BALLOT AS TO THE STOCKHOLDER'S VOTE, IT WILL BE DEEMED TO CONSTITUTE A VOTE
IN FAVOR OF THE PROPOSAL SET FORTH ABOVE.
Please be sure to sign and date this Ballot below.
Date: ________________, 1998 _____________________________________
Signature
_____________________________________
Signature
(When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If shareholder is a corporation, corporate name should
be signed by an authorized officer and the corporate seal affixed. If
shareholder is a partnership, please sign in partnership name by authorized
persons. For joint accounts, each joint owner should sign.)
